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National Broadband Network Select Committee
15/03/2016
National Broadband Network

MORROW, Mr Bill, Chief Executive Officer, nbn co

MAYBERRY, Mr Brian, Manager, Field Services, nbn co

RUE, Mr Stephen, Chief Financial Officer, nbn co

RYAN, Mr Peter, Chief Network Engineering Officer, nbn co

SIMON, Mr John, Chief Customer Officer, nbn co

STEIGER, Mr Dennis, Chief Technology Officer, nbn co

Evidence from Mr Mayberry, Mr Simon and Mr Steiger was taken via video conference—

CHAIR: Welcome.

Senator CONROY: Mr Steiger, could you hold up today's newspaper? I am just determining proof of life! I want to see that that is really you today and that it is not some time-lapsed video that we have got here. It is a pleasure to see you again, Mr Steiger. I have been very keen to chat.

CHAIR: Mr Morrow, do you wish to make a brief opening statement?

Senator CONROY: And could we get a copy of it?

Mr Morrow : Yes to both questions. I would like to make a statement, and we will provide a copy to the committee.

CHAIR: Thank you.

Mr Morrow : We would like to thank the chair and the senators. As we mentioned, in the room with me today are my colleagues, and we have a couple more on videoconference. A bit later in the day, we will have another team member, Brian Mayberry, join the video link as well. As agreed, with the committee chair, the video participants will not be with us for the full duration of the hearing, but, of course, the two gentlemen to my side will be here with you all day.

As usual, I would like to open with an update on the progress and performance of nbn. Even though we provided an update roughly four weeks ago, this update is important because our progress has further accelerated. I would also like to address the recent reporting and commentary that has been made about nbn. It has either been taken out of context or is simply incorrect.

It is important to recognise that the policy direction of the NBN network and the model that it pursues is a matter for the government and not ours to debate. As directed in the Statement of Expectations, we take a technology agnostic approach to roll out the network as fast as possible and at the least cost. Plans that comply with these expectations were created and approved by both the board of directors and the government. These plans have expected outcomes, and they are the responsibility of the executives before you.

I want to share with you why you can take comfort in the fact that we are delivering on these agreed outcomes. First and foremost, the NBN build is accelerating. It is on track, on budget and performing as expected. Our end users, RSPs, delivery partners and employees are reporting higher engagement and satisfaction levels than ever before. Yes, there are challenges, and we are promptly working through them as you would expect. Let me detail some of the facts that back up my claim.

I will start with the acceleration. When I was last here, I reported that as of 4 February, we had 1.77 million premises that were ready for service. Now, our figures as of last week, 3 March, has our total footprint as being over 1.91 million. A further 145,000 homes have been added over a four-week period. That is an average of more than 35,000 homes per week. This number is triple the speed of the rollout a year ago; seven times faster than the rollout two years ago; and 35 times faster than the rate of 2013.

As you can see, this year has proven to have the fastest growth rates yet in the NBN's history. Looking at the past couple of weeks alone, we continue to accelerate as we have exceeded 40,000 homes each week. The main reason that we are able to accelerate so quickly is due to FTTN and the fact that the lengthy construction work over the last kilometre is typically not needed since it is already in place. Of the 145,000 premises added this month, 80,000 of those are part of the FTTN footprint which is key to us being able to skill up even further.

Moving to the fact of nbn being on track, we said we would have 2.6 million premises ready to go by 30 June 2016. Our satellite program is well on track for a commercial launch in April or May of this year and that will cover more than 400,000 homes. Add this to our 1.9 million already completed homes and we are left with less than 300,000 to get to our target in the next 13 weeks. With no further acceleration that would only require 23,000 homes per week. However, as I said, this last month has averaged over 35,000 homes a week. So, we can certainly make this claim that we are on track with the build.

I know you will ask about an alleged nbn document the talks about FTTN designs being behind. Let me clarify the facts on this too. It is a fact that the volume flowing through our FTTN design process was partly held up due to sub-optimal processes in our work with the many different power companies; each with their own different and unique process. We have since resolved the major bottleneck, but it was never an issue of the NBN rollout being off-track.

Let me explain why: first, the document in question only refers to one program that does not represent the entire FTTN build. Second, depending on the technology, there are up to 14 steps in a process before an area is declared ready for service. Each step is closely monitored and has its own targets. The metrics under each have thresholds higher than what is needed to meet the corporate plan. We do this to allow for any unexpected challenges, as is prudent in a newly established process. This contingency management is something that any large project management organisation will do and is exactly what was happening here.

I would further point out that the team advanced subsequent steps in the process that were not related to power to shorten the cycle time of these steps, thereby, again, giving us the assurance of meeting or exceeding our corporate plan target. We now have nearly 250,000 premises ready for service across our FTTN footprint, with over 30,000 active end users.

So, again, we have the facts that demonstrate we are on track for this year's 2.6 million premises and the work necessary to meet the subsequent rollouts that complete the build in the year 2020. So, as we are accelerating and keeping on track with our rollout program, we are also staying on budget. Revenues have been reported as being ahead of plan, and we see recent results that continue with this pattern. Our total opex has been in line with budget and continues to be so. Our capex and cash flow are equally in line with budget. There has been an allegation that our FTTN program is costing more than expected. This is not true. There will always be a balancing across the entire plan, where some parts are higher and some parts are lower than what was forecast, but in the case of FTTN our actuals to date and forecasted costs per prem remain at $2,300.

While I am talking about the CPP, please allow me to explain the progress of our continued efforts to reduce the cost across all technologies. We have been working on something we call skinny fibre, which reduces the amount of civil works needed to push fibre down a street. We have taken concepts from paper analysis to field trials and have recently completed about 4,500 homes in a fibre application using skinny fibre. This area actually went live a few weeks ago, and we have been studying the data since then. The findings are encouraging. Relative to cost, we were able to reduce the cost per premises by roughly $450 per premise, and, while this is early, it is still significant. Relative to time, we believe that we could shave four weeks off the time of the build. As a result, we believe there is merit in exploring this technology further. When we combine skinny fibre with fibre to the distribution point, we see opportunities in unique areas that would otherwise be slated for fixed wireless or FTTN. Further, skinny fibre on its own may be well suited for new developments, so it is important to note that there are trade-offs with skinny fibre and it is still somewhat in a development stage. This is a good example of our technology-agnostic approach and finding the fastest way to deploy at the least possible cost.

Finally, I would like to provide facts on how the network is performing as planned. As you know, each of our access technology architectures will have unique characteristics that will differ from each other. This includes the maximum speed, the average faults that will occur, the level of disruption in installation and even the upgrade paths to expand capacity down the road. As you know, we started with three access technologies that differ in each of these characteristics, and we have added two more. I would also like to add that, with each of the two we added, there will be variants, such as FTTB and FTTDP, that will carry different characteristics than even the base technology of FTTN.

I can report that all of the network technologies deployed so far are performing according to the expected levels across each of these characteristics. I raise this with you to clarify the issue of customer complaints that was raised by Senator Conroy and Senator O'Neill at the recent Senate estimates. Since then, our team has contacted the offices of Senator O'Neill and the members for Shortland, Charlton and Newcastle. We went through every complaint with the staff in these offices to check progress and what the root cause was. We take all of these issues very seriously and will continue to work with offices to resolve constituent complaints, but the numbers are actually very small given the scale of the rollout.

We found that, of the issues reported to their offices, as well as those reported through RSPs and to us directly, none was directly related to the FTTN technology itself or the copper circuit. The majority related to the installation issues, the type of modem end users were sent, the timing of existing services being switched over and the understandable frustration of missed appointments. There were also a number of speed complaints, particularly about speeds dropping during peak times. This is not related to the technology. It is exactly the same on FTTP and is mostly a function of the manner in which a few of the RSPs have dimensioned their capacity.

A statistic that is tracked separately from the number of complaints is our line fault rates. We know and expect FTTN to have a higher fault rate than the other technologies being deployed, but the percentage of faults being fixed thus far is in line with what was expected. One point four per cent of the circuits in use have required repairs. This is roughly in line with what other copper networks are reporting, and we expect this to improve over time.

Providing further fact based evidence on the expected performance of FTTN is how our most recent survey for FTTN customers is positive. Overall satisfaction and net promoter scores are trending well for FTTN. Our NPS is plus 18 for FTTN, just six months after launch. By comparison, our FTTP NPS at the same point in time was plus 19. So, as with FTTP, it improved to its current plus 29 and we expect FTTN to follow suit.

We know, and our surveys confirm, there are a number of enhancements that we continue to need to make around our processes and our connections. For that reason, we continue working on the end-to-end process that starts with the RSPs and move through the DPs, NBN and ultimately to the steps the end user performs to be sure the experience is positive and the network speed is performing at the level purchased. Speaking of speeds, I would like to clarify the facts further by pointing out the average available download speed across all 30,000 active FTTN services is testing at 83 megabits per second, and the average upload is testing at 36 megabits per second. The speed our end users will actually experience depends on the product they buy from their retailer. Our reports show 88 per cent of FTTN end users are opting for 25 megabits per second or less, with 67 per cent taking 25, and 21 per cent taking 12 megabits per second.

To close, I would like to reiterate how the company is accelerating the rollout. It is on track, it is on budget and it is performing as expected. Our end users, RSPs, delivery partners and employees are reporting higher engagement and satisfaction levels than ever before. The facts are what they are, and the thousands of employees and partners have delivered within the parameters defined by the government and consistent with the objectives defined in the corporate plan. Regardless of one's preference of technology, the current mix is the fastest and least-cost approach to bringing broadband to all Australians. Thank you, and we are happy to take whatever questions you may have.

CHAIR: Thank you, Mr Morrow. I will turn to Senator Conroy.

Senator CONROY: Thank you, and I also thank Mr Simon for appearing at such short notice. I appreciate it. Mr Steiger, could I confirm your title. You are still the chief technology officer?

Mr Steiger : I am.

Senator CONROY: And you now report to Mr Peter Ryan, who is with us today?

Mr Steiger : No, I report to the chief strategy officer.

Senator CONROY: Who is that?

Mr Steiger : It is Brad Whitcomb.

Senator CONROY: Thank you for that. Now, nbn has indicated that there are about 11,000 homes in its HFC trial for footprint, so I understand it is 9,886 in Redcliffe, 790 in Emu Plains and 500 in Merrimac. Is that right?

Mr Steiger : I believe that is correct but I have not been involved with the trial or the program for some months now, in terms of the testing.

Senator CONROY: So you are not actually overseeing the HFC rollout?

Mr Steiger : No. I am refocused on my role as the chief technology officer, which really means looking at end-to-end architectures, next generation technologies and technology strategy. As of around August 2015, the HFC program was reintegrated in the company.

Senator CONROY: But you were hired because you were—and I could go back and get the very glowing testimonials that we were given, in press releases and in person; not by you, Mr Steiger, I should say—the world's leading expert on HFC. You were hired as an HFC expert.

Mr Morrow : Senator, I can clarify.

Senator CONROY: Mr Morrow wants to clarify before you can talk, Mr Steiger.

Mr Morrow : Dennis was not the one who hired him into the company. It was me and Greg Adcock who hired Dennis into the company. As you recall, Gary McLaren was the former CTO of the company before I came in to nbn co and after Gary had left we decided that we wanted to hire a CTO to replace Gary. We also decided that that position would report to Greg Adcock, who was our chief operating officer. Dennis was hired to do that. The very fact that he had HFC experience was a big plus for us. We appreciated that. We know that we need that expertise in, but it was the full gamut of technologies that Mr Steiger was responsible for.

Later, we temporarily removed Dennis from his position—actually, we gave him an additional responsibility—and he maintained his dotted-line reporting to Mr Adcock with the solid-line reporting to me, to start to get a kick-start to HFC, to look at it. Once that was done he no longer had that temporary responsibility and he continued to maintain his role as the chief technology officer.

Since then, Mr Adcock has left the business. Mr Ryan has replaced Mr Adcock. So that structure was in place for almost two years. I then made the decision to take Dennis, who is more forward thinking with his role and his team, and move that into our strategy organisation, and so we, effectively, transferred Dennis to Mr Widcombe.

Senator CONROY: So Mr Ryan is in charge of the rollout. Do you have any experience with HFC? What is your background, Mr Ryan?

Mr Ryan : My background is I have worked in the telecommunications industry since around the early 1990s.

Senator CONROY: Have you ever deployed an HFC network?

Mr Ryan : I have never deployed in HFC network.

Senator CONROY: Do you have any experience dealing with HFC networks?

Mr Ryan : Not previously, no.

Senator CONROY: So you are in charge of a rollout that you have never touched on before, so to speak.

Mr Ryan : The rollout of the HFC network is like the rollout of a lot of major infrastructure programs. It has a lot of similarities with them, but have I rolled out an HFC network per se before? No.

Senator CONROY: You have not managed one. You have not run one. You have not touched one before.

Mr Ryan : No.

Mr Morrow : I would point out that Mr Ryan is at a very senior executive level. Fortunately, he has a number of people, as he said, who are experts, who have done this—

Senator CONROY: But not Mr Steiger. He is not reporting to Mr Ryan.

Mr Morrow : No, but we have many more experts within the company who are well-skilled. As you know, there are lots of HFC experts, here, within Australia. We have hired a number of them to come in and help us build and maintain the HFC network.

Senator CONROY: Mr Steiger, have you ever dealt with satellite technology before, in your previous roles?

Mr Steiger : Yes, I have. At a former company I worked for I had a pretty significant satellite direct home business.

Senator CONROY: Were you working on that—

Mr Steiger : I was.

Senator CONROY: or where you working on the HFC network?

Mr Steiger : I was the chief technology officer there, in a slightly different definition. I was responsible for all the company's technology, development, rollout operation support.

Senator CONROY: And fixed wireless?

Mr Steiger : We did not deploy fixed wireless outside of wi-fi technology. We employed about 30,000 access points around Western Canada.

Senator CONROY: And fibre to the node? Did the company you previously worked for have a node network?

Mr Steiger : No. The wires networks were primarily HFC so we did not have access to ADSL technology.

Senator CONROY: So no fibre to the premise, no fixed wireless and no fibre to the node in the previous company.

Mr Steiger : We were definitely a leader, in private premise, in north America.

Senator CONROY: So your company did do fibre to the premise, previously.

Mr Steiger : We did.

Senator CONROY: What a pity you are closing it down, so that will be irrelevant to your ongoing role. I am sure you must have been following the fibre-to-the-premise 'skinny fibre' trial. Have you been overseeing that?

Mr Steiger : Very much so. That particular innovation was one of the initiatives that our group led. Once it reached the point where it was ready to go to trial it was handed over to our engineering team, led by Peter, and they have been running it since then.

Senator CONROY: We have one of the world's leading HFC experts and he is not working on the HFC trial, and we have somebody who has not done an HFC rollout before in charge of the HFC rollout.

Mr Morrow : We have many experts involved all over the HFC network. As you know, Senator, there are many companies, many people, hundreds if not approaching thousands now, working on HFC. The beauty of Dennis and Peter is the breadth of experience that they have. Remember, senior executives are more about managing process and leading people. That is exactly what they do. They have familiarity with technology, but they have people that work with them and for them that are in fact expert in each of these areas. It is the right blend and the right mix, and it is why we are so successful in being on track, as I reported in my opening statement.

Senator CONROY: All right. I might come back to you, Mr Steiger, on the skinny fibre trials in a minute. Mr Ryan, you have been nominated as the person to assist me with the NBN rollout. I was asking about the 11,000 homes in the HFC trial footprint—roughly 9,800 in Redcliffe, 790 in Emu Plains and 500 in Merrimac. Is that right?

Mr Ryan : That is right.

Senator CONROY: Your corporate plan 2016 says that 10,000 HFC premises will be ready for service by 30 June 2016, so I take it that all the trial premises are the same—the 11,000 and the 10,000 are the same.

Mr Ryan : No, that is not correct.

Senator CONROY: Okay, help me out.

Mr Ryan : We are doing trials in a number of areas to test our operational processes—in the ones you have just mentioned, predominantly in doing lead-ins to houses. We are also doing other trials on MDUs. The 10,000 that you mentioned are predominantly in the Redcliffe area within Brisbane.

Senator CONROY: Okay, so when the corporate plan says '10,000 HFC ready for service', you are referring to the Redcliffe 9,886. I am drawing that number from an answer that the company has previously given in writing.

Mr Ryan : The 9,000 is what we—

Senator CONROY: The 9,886 in Redcliffe.

Mr Ryan : That is right, so we are doing—

Senator CONROY: You identified them a moment ago as the 10,000 HFC premises that will be ready for service by 30 June 2016. They are one and the same.

Mr Ryan : They are not one and the same. They are in the same geographic area, but they are not like for like in terms of premises.

Senator CONROY: Okay, so—

Mr Ryan : The trials we are doing there are trialling the lead-in process of building lead-ins to houses. It is an existing footprint with Optus, with existing lead-ins in place, and together they will make up the 10,000 that we are trying to get to.

Senator CONROY: Okay, so in and around Redcliffe—

Mr Ryan : Correct.

Senator CONROY: there will be 10,000 that are ready for service, but the 9,886 will not necessarily comprise all of them. There are some others that will come in to make up the balance.

Mr Ryan : That is correct.

Senator CONROY: Thank you. Are you overbuilding anywhere in the Optus footprint?

Mr Ryan : No.

Senator CONROY: You mentioned these are in an Optus area.

Mr Ryan : No, in that area we are—

Senator CONROY: In any of the Optus footprint area that is distinct from the Telstra area, are you overbuilding?

Mr Morrow : What do you mean by 'overbuilding'?

Senator CONROY: Putting another network in there, either by Telstra or with any other type of fixed-line technology. Are you building nodes in an Optus footprint, or is Telstra overbuilding, on your behalf, into the Optus area?

Mr Ryan : Right now, no.

Senator CONROY: Is there a plan to do that?

Mr Ryan : There is at this stage no intention to do so, no. I think we have made this clear. Where we have an overlap between the Optus network and the Telstra network, the intention is to utilise the Telstra HFC network. Where the area is uniquely Optus in terms of the HFC footprint, the intention at this stage is to utilise that Optus HFC network.

Senator CONROY: This is probably for Mr Simon: will nbn co need its HFC product set—that is, the HFC commercial launch—to happen before it can start charging for services on the HFC?

Mr Simon : Yes, it will.

Senator CONROY: Nbn co's latest product road map, dated 1 January 2016, indicates that your commercial launch for HFC is scheduled for the second quarter of 2016—is that correct?

Mr Simon : That is correct.

Senator CONROY: Nbn's HFC product release, PR044, first appeared in nbn co's January 2015 road map, where it was scheduled for the first quarter of 2016. So why has the HFC commercial launch been delayed?

Mr Simon : As you would experience and know, for programs of this size, what we are trying to do with our RSPs is to give them an indication of when those products will be available. You are talking about giving a target date some 18 to 20 months out, so, as you would imagine, there would always be some movement across that—new network releases and new IT programs. For a program of this size, you would expect some amount of variability. We give early indications to our customers so they can commence work. It is never meant to be a locked-in date at that point. As we get closer and as we start to go through our business readiness testing and RSP testing, we obviously can then start to lock in dates.

Mr Morrow : Our objective and our commitment is the top-line rollout of the company. If we decide we can move ahead of one particular technology that slows down another one—we take those decisions constantly. So there will never be a firm commitment against the subtechnologies; it is always against the top-line rollout.

Senator CONROY: I am quoting from your own original document. Comparing documents, there has been a three-month slippage. I was just asking for an explanation.

Mr Simon : Those documents clearly indicate that they are estimates, not guarantees. In fairness, you would need to take that in the context in which those documents are offered.

Senator CONROY: Does nbn co anticipate more delays with its HFC commercial launch?

Mr Morrow : Mr Rue has just pointed out to me that the corporate plans has always stated that it was in the first half of the year.

Senator CONROY: I am just going on your own documents. I am not saying you have not updated your documents because you have not met your targets; I am just pointing out that, when you started, this was the target date. Just because you write another document that says 'this is the target date' does not mean that you have not had the three-month slippage.

Mr Morrow : The corporate plan was our committed level. Any other internal data, what we move around, again is just something that we do to—

Senator CONROY: I appreciate that you do not want to be held to account for the dates that you publish, but I was going to move on. Do you anticipate more delays with your HFC commercial launch?

Mr Simon : No, we do not. We are working hard in going through a range of network releases, IT releases. We are going to introduce our business readiness testing. I cannot predict what that will find. As you know, when you test these things, things come up. But all indications are that we are heading towards that midyear time frame for a launch.

Senator CONROY: You have indicated that nbn co will provide the network termination device, or cable modem, for HFC. Is that still your intention?

Mr Simon : Yes.

Senator CONROY: Your network design rules say that the HFC NTD, the modem, will be the subject of an RFP. Has this happened?

Mr Simon : The answer is yes, it has.

Senator CONROY: The RFP has happened, or you have issued the RFP?

Mr Simon : The RFP has happened.

Senator CONROY: Is it completed? Have you selected?

Mr Simon : Yes.

Senator CONROY: Have you placed the order?

Mr Simon : I would have to check. It is actually with our teams. But clearly we are—

Senator CONROY: When did it open, when did it close and when have you placed the order?

Mr Simon : I do not have the information in front of me. I would have to take that on notice.

Senator CONROY: When does the first box arrive at nbn headquarters?

Mr Morrow : We will get you an answer.

Senator CONROY: You must know that. It is mid-March!

Mr Morrow : Clearly we have modems. We have trial underway right now.

Mr Morrow : We already have modems from our suppliers.

Senator CONROY: I appreciate that. I was being figurative rather than literal. When does your order get delivered? You are installing them, or supplying them, so you must have a warehouse where you are going to have them.

Mr Simon : There is progress in delivery of modems across obviously our BRT and our commercial release and launch through March, April, May and out into the—I do not have here with me the specific details of volumes as to where and when.

Senator CONROY: That neatly avoided the question I asked. If you do not even know whether you have placed the order yet, I am surprised that you can say you know when they are going to arrive.

Mr Morrow : I am pretty well convinced that we have placed orders.

Mr Steiger : We have placed the orders. We will get you the date.

Senator CONROY: When was the RFP? When did it open, when did it close and when did you place the order?

Mr Simon : That is where I said I do not know. I did not say what that we have not placed orders. I thought you were asking questions on specific times. I do not have those specific times. Have we placed orders? Yes. Are modems being delivered yet and do we have some now? Yes. Those modem ranges continue to develop over the next three and six months ready for the launch and then beyond the launch.

Senator CONROY: Mr Ryan, I want to come back to the issue around overbuilding Optus HFC. It is reported to me that in Kellyville, New South Wales, which I understand is an HFC area for Optus, nodes are appearing on Poole Road and Tremain Avenue directly under cable on poles. It might be that the person supplying the information is wrong, but that would go to your answer you that no nodes are being constructed in the HFC footprint. Could you clarify that during the course of the morning.

Mr Ryan : Yes, we will seek to do that.

Mr Morrow : Which area?

Senator CONROY: Kellyville—in Poole Road and Tremain Avenue. We are told that nodes are appearing. It could be someone else. It could not be the Optus HFC cable. If I could just clarify that, that would be great. So who responded to the RFP for the modems?

Mr Morrow : Arris and Technicolor were the two finalists.

Senator CONROY: And who won?

Mr Morrow : Arris.

Senator CONROY: Will nbn co be using Broadcom chipsets in its DOCSIS 3.1 build?

Mr Morrow : That is a decision for Arris.

Senator CONROY: Is Arris using Broadcom chipsets in its DOCSIS 3.1 build?

Mr Morrow : They may very well be. I cannot verify that. We do not open up the boxes and look within. That is a question you would have to ask Arris.

Senator CONROY: Has nbn finalised the network design for HFC yet? Do you know, for example, how many homes will share each node?

Mr Ryan : I would have to get you the specific number but we have a design rule that aims to have in the order of 700 to 800 premises per node.

Mr Morrow : Dennis, are you aware of the specific number?

Mr Steiger : It is a progressive evolution over time between now and 2022. By 2022, we are forecasting around 17,000 segments. There are up to four segments on a node. So, while we are starting with a maximum of around 800, our average will be around 650 homes passed per node and they will be progressively subdivided over time as required by traffic engineering.

Senator CONROY: So you cannot actually tell me how many nodes you will end up with in the network because it will be subject to demand as it builds up over time?

Mr Steiger : It will. We would like to use the word 'segment'. Nodes historically have only had one segment, and now we see two segments and four segments per node. So we will probably wind up with around 5,000 nodes, going up to about 17,000 segments.

Senator CONROY: Mr Ryan, can you walk me through what we mean by segments and nodes?

Mr Morrow : I think Mr Steiger is better equipped to do that given his technical depth on that question.

Senator CONROY: It is a rollout issue—how many nodes versus segments. How many segments are there in a node? It is down to the construction.

Mr Morrow : Dennis, how many segments are there in a node?

Mr Steiger : Traditionally, there is one segment per node. Depending on the actual node that is deployed and how the co-ax network was constructed, typically you would wind up with two or four segments when you deploy next generation node technology.

Senator CONROY: Could you repeat that.

Mr Steiger : Two to four segments per node.

Senator CONROY: Do you mean a geographic area segment or do you mean that there are literally four or two walled segments inside the box on the side of the street? Could you help Mr Ryan and me with that?

Mr Steiger : Both of those things are true. There is a physical separation on the plant. So we are segmenting a 650 homes passed area into two or perhaps four segments. The way that is done is by creating that physical separation and weighting on the separation on that node.

Senator CONROY: I appreciate that you have a time constraint, but I might come back to you if there is time. So how many new HFC co-ax lead-ins does nbn co assume will need to be installed to complete the HFC footprint?

Mr Ryan : I think it is around 1.9 million. I think we have answered this question previously.

Mr Morrow : That is under the total footprint of what we had initially circled as HFC candidates.

Senator CONROY: Will nbn co use the Optus HFC lead-ins, or will they be overbuilt?

Mr Morrow : Our intent is to use the HFC lead-ins for Optus.

Senator CONROY: Mr Steiger, I am sure you are across reports that emerged late last year about the state of the Optus HFC network. Are you familiar with those reports?

Mr Steiger : I did see them, yes.

Senator CONROY: Mr Morrow indicated to the estimates committee a month ago that nbn does intend to use the Optus HFC. For how many premises does nbn co intend to use the Optus HFC network? Mr Ryan, you might want to jump in as well.

Mr Ryan : To be honest, we are still finalising the precise number—

Senator CONROY: I am happy to take something in the tens of thousands. It does not have to be down to the last decimal point.

Mr Morrow : Originally the target was about 500,000 homes. That was in the area where we thought Optus was unique in its HFC fibre offering. That 500,000 will not materialise to be all served by HFC. That is because there are a number of MDUs in these areas that do not have any co-ax running up the laterals to go into the buildings. The economics of running up a multi-hundred unit MDU is not proven with HFC. That could very well be a fibre-to-the-basement type of area. Also, there are areas of infill—

Senator CONROY: Could you define 'infill' for the uninitiated.

Mr Morrow : I will. Whether it is Telstra or Optus, they would often go into a neighbourhood and, for whatever reasons they had, they may leave streets where they did not run cable down those streets. It could have been a subsequent new development that came in after they started, and it may have 50, 60 or 100 homes. So there is no coaxial cable being passed before those homes. Those areas may have economic triggers that suggest an FTTN application rather than an HFC application.

Senator CONROY: I want to move on to a couple of questions relating to witnesses who appeared earlier. Mr Morrow, did you see all that? You were in another room. Were you able to watch it?

Mr Morrow : I did not see it. I have many programs I would love to see, and I wish I had seen the estimates committee hearing!

Senator CONROY: This was up there in the top ratings! Mr Morrow, last week, on Sky News, you finally let the cat out of the bag—that there will be more than 30,000 nodes to be built to 2020 as part of nbn co's fibre-to-the node network. Could you be more precise. Was it 30,000, 35,000 or 40,000?

Mr Morrow : The team has given me a briefing that it is slightly over 30,000. Peter, what is the actual number?

Mr Ryan : That is my understanding.

Senator CONROY: So 31,000, 32,000—not 35,000?

Mr Morrow : This is all fluid. I think it is important for the committee to understand that we have not physically walked every street, looked at every home and looked at every cable plant out there. This is the point I was trying to make earlier. We feel quite confident about delivering on the top line. But what HFC is, what FTTN is, what fibre to the prem is or what fibre to the distribution point is is all going to shift and change as we learn more and get closer to the actual homes that are going to have this happen to them. So it is fungible in terms of the movement around and it is not precise because, again, you have to do a physical inventory on many of these.

Senator CONROY: Mr Morrow, do you need utility companies to connect your copper nodes to mains power?

Mr Morrow : Yes.

Senator CONROY: What is that like—being dependent on companies to hook up your nodes? Do the companies always work to your timetable? They did not work to mine.

Mr Ryan : What I have found is that, like all these things, we rely on a third party as part of the process to get to an end-to-end outcome. As long as the right commercial agreements are in place, expectations are understood, there are good forecastings and processes are clear, then over time it becomes rhythmic and the outcome is increasingly confident.

Senator CONROY: Have you been suffering any difficulties in getting mains power hooked up to your nodes on time?

Mr Ryan : Yes, we have.

Senator CONROY: You said it is becoming more rhythmic; so it has not been quite as rhythmic?

Mr Ryan : It would be fair to say that it took a bit longer than we had anticipated for some utilities to put in place the right commercial agreements. Remembering that, to put the commercial agreements in place, we first went down the path of ensuring that we were getting alignment on using unmetered power for the simplicity of the end rollout. Having got agreement to that and agreement to all the processes and transactions back and forward and around the approvals and the standards as well—the electrical standards that have been put in place—all of these are now in place, and we are operationalising these processes. We are now clearing some of the backlog that had built up as a result of putting those agreements in place.

Again, I just want to comment that it is not everywhere that this is the case. Again, I do not know how many utilities there are across the country—over 10; somewhere between 10 and 15. We have been putting these agreements in place progressively. But they are now all in place.

Senator CONROY: What is the cost in capex to get a utility to come in to hook up to one of your nodes with mains power?

Mr Ryan : I would have to take that on notice.

Mr Morrow : We will see if we can find out before the end of the—

Senator CONROY: Thank you. I just want to do some simple math—30,000, roughly, times whatever that is. In answer to a question on notice, No. 19 of the Senate Select Committee on the National Broadband Network, nbn co estimated that it would cost $2,000 per year in electricity costs to power each node. At more than 30,000 nodes, that is more than $60 million a year in electricity costs just to run the nodes. Does that sound about right?

Mr Ryan : Again, I would probably have to get the number, but it is in that order of magnitude—yes.

Senator CONROY: So that is from an answer already given—about 2,000 per year. So now we know, roughly, the number of nodes. So that is the math—2,000 times 30,000.

Mr Ryan : I was referring more to the 2,000.

Senator CONROY: That is a number that you supplied. What about batteries? How many large batteries do you need to back up each node?

Mr Ryan : Again, I would have to get that on notice—the exact number of batteries per node that we deploy.

Senator CONROY: I am just looking to work out a cost there times 30,000.

Mr Ryan : So you are more interested in the cost of the batteries rather than the number of batteries?

Senator CONROY: The cost and the number help me then create a dollar figure.

Mr Ryan : In another answer to a question on notice, nbn co states that it will need an average 350 metres to connect each node to the pillar. That is an answer from you guys. At more than 30,000 nodes, that means you will need more than 10.5 million metres of new copper to connect up all of your nodes. Mr Morrow, do know how far a distance of 10.5 million metres is? You can get from Melbourne to Mumbai with that much copper.

Mr Morrow : Can I offer clarity on this. I was the one that gave you the answer when Mr Rue and myself were trying to help you with your questions.

Senator CONROY: No. That is an answer on notice. It is not a verbal answer.

Mr Morrow : We did have a bit of the discussion on that, because we did announce what our total copper was that we were purchasing and the average per node at the time. It is important to understand that there are multiple sheaves that go between the nodes and the existing pillar. If you think on a home basis, it is less than 50 metres on average that we are adding copper to a house. All that is doing is being able to connect the existing pillar and have copper that goes up to where the fibre comes into the node. That is typically an eyesight distance, but that average copper length added to anybody's house is less than 50 metres.

Senator CONROY: But I am talking about you answer which talked about connecting the nodes and the pillars, because they are not always in the same place.

Mr Morrow : That is the answer. That is what I am saying. That is why it is an average of less than—

Senator CONROY: Average—350 metres.

Mr Morrow : No. This is what I am saying. I am clarifying. If you remember, there is—

Senator CONROY: I am just reading from your answer.

Mr Morrow : I know. That is the amount of copper that was purchased; that is not necessarily the extension of the copper that goes onto everybody's circuit. There is a fundamental difference. The fact that we have the design with diversity of cables in different sheaths—different sized copper pairs within each sheath—going from the nodes to the pillars is not a function of adding this much copper or replacing the existing copper out there. It is a design to make sure that it is robust and reliable. But the average copper length added to anyone's home is no more than 50 metres.

Senator CONROY: What are your copper remediation costs so far? There are nbn co documents, which you do not directly acknowledge, that have appeared in public. I have heard a rumour of $640 million to patch up the old copper. Do you have a revised estimate for us?

Mr Morrow : The estimate that was put forward into our planning document is a number that we think that we are currently beating. But we want to emphasise that it is still early in the deployment and, therefore, the total cost of remediation is less than what was expected.

Senator CONROY: But $640 million was an accurate forecast? You are now saying there is a lesser number?

Mr Morrow : I am not ready to release that number and say it is less because I think we are still in the early days. We have not discovered every bit of the copper out there. I anticipate that perhaps some could be worse or better than what we are currently seeing.

Senator CONROY: I just want to be very specific and come back to the question that was answered in writing—No. 116:

… NBN Co indicated that it had procured 1.8 million metres of new copper at a cost of $14 million. It also indicated that the average amount of copper needed for each node to connect to a pillar was 350 metres—

Then we asked—

(a) what is NBN Co’s working assumption of the average amount of copper needed for each node to connect to a pillar for the life of the FTTN build?

(b) What is NBN Co’s current estimate of the amount of new copper (in metres) it will need to roll out FTTN/B to 4.5 million premises?

(c) What is NBN Co’s current estimate of the amount it will spend on new copper to roll out FTTN/B to 4.5 million premises?

You said:

Answer:

(a) In work to date, the working assumption for the average metres of copper cable needed to connect a pillar to a Fibre to the Node (FTTN) is 350 metres.

You are fairly emphatic—

Mr Morrow : No. Again, it is a misunderstanding in terms of how you are interpreting what we are talking about. Pete, can you explain the architecture and how the different cable lengths go up to the node and back to the pillar and so on.

Mr Ryan : From the node to the pillar, as Bill says, the average distance is within that 50 metres. We have to run pairs both in terms of the customer side as well as the exchange side, and we run two each in both directions. So that is why you have to multiply the length up in order to get the total length of copper cables. Again, the physical distance from one to the other—the cable path—will be longer than the actual physical distance simply because it generally has to interject with copper cable—

Senator CONROY: Unless you want to dig a new set of trenches, at which point it would be prohibitive.

Mr Ryan : Which we seek to avoid.

Senator CONROY: I just want to be clear: we are talking here about between the pillars and the new nodes that you are creating?

Mr Ryan : That is correct.

Senator CONROY: And your statement is that 350 metres is the average number of metres.

Mr Morrow : Think of it as the sheath length, though. The sheath is the outer covering of multiple coppers within. If you just had a 25-pair cable and you needed to connect 500 homes, you are going to have to have five or 10 of those to be able to deal with that. If you added all 10 of those together, you are going to have the higher metres reported to you. That is what we are trying to point out. If you can just bear with me for a second, while I am not as technically deep into the issues, I can translate it to a level that I think will be easy for the committee members to understand.

Today's architecture, from an exchange that Telstra owns, has a distribution copper pair, which has been twisted, that rolls out and goes to a pillar that is in your neighbourhood. That pillar then has a jumper that connects to another copper pair called the local network that goes out to your house. So imagine two different sections—the distribution and the local section—that pop up in this pillar with the jumper between them.

We come by and we install a node within, say, 50 metres or within eyesight distance of that pillar. Now we have to run a new copper twisted pair from that pillar to the exchange, but we have to do it twice because one is to connect the distribution coming from the exchange to get there and another is to connect what is coming from your home on the local network to get there. When we make the cut over—when you are no longer on the Telstra network and you are on the NBN service—we do not use that copper that has gone from the distribution side to the node. That 50-metre cable is just abandoned. It is not needed at that point. So can already see where we may have to add 100 metres of a copper pair, but only 50 metres in the end is going to be actually used. But during the transition period that is necessary.

Senator CONROY: Mr Ryan, I have a Google Maps image here—and I am happy to forward it to you—which shows that there is a node being built underneath an Optus HFC cable.

Mr Ryan : In Kellyville?

Senator CONROY: In Kellyville. Are you able yet to revise your answer that you are not overbuilding with another technology in an HFC footprint?

Mr Ryan : I think it is prudent to wait until we get the answer to the question.

Senator CONROY: I can send you a Google Maps link right now.

Mr Morrow : Senator, what you are saying is that somebody has reported to you that there is a node where there is HFC network. As I mentioned before, if there is an MDU near it could very well be that—

Senator CONROY: I specifically asked Mr Ryan whether you are overbuilding an HFC network.

Mr Morrow : That is not an overbuild.

Senator CONROY: So that is an 'inbuild', is it? Is that what we would call that?

Mr Morrow : No. If there is an MDU that does not have any HFC broadband service within it or if it was not adequately or thoroughly cabled through, the very fact that we come in and put an FTTN or an FTTP technology is not overbuilding; that is just building because they do not have broadband services already running to each of those units.

Senator CONROY: If we can clarify, it is 20 Tremain Avenue, Kellyville, New South Wales 2155.

Mr Ryan : Sorry, could you say that again?

Senator CONROY: I am just giving you a specific address of someone who is connected to Optus cable. 20 Tremain Avenue, Kellyville, New South Wales 2155.

Mr Morrow : They are what?

Senator CONROY: They are someone on Tremain Avenue where there is a node and the Optus cable above. The person has offered to send a photo. Can we just get some clarification about that, Mr Ryan?

Mr Ryan : Will do.

Senator CONROY: You came from Vodafone before you worked for nbn co?

Mr Ryan : I did, yes.

Senator CONROY: So you worked with Mr Morrow at Vodafone?

Mr Ryan : Not for him directly. Bill was the CEO at the time that I was there.

Senator CONROY: What was your job at Vodafone?

Mr Ryan : I was the general manager of the network delivery.

Senator CONROY: Network delivery. What was that—you were in charge of performance?

Mr Ryan : I was charged with the capital rollout of all their network infrastructure.

Senator CONROY: So you installed the Huawei network? Or were you gone by the time the Huawei network was installed?

Mr Ryan : The rollout of the Huawei network was part of my accountability, yes.

Senator CONROY: Mr Morrow, I have heard a rumour that you had been having some difficulties—and I think you allude to it in your answer—with your FTTN designs. It appears that problems are surfacing with the quality of these designs and the time frame for delivering them. You have offshored them to India—that is correct. Tata, is it?

Mr Morrow : We have some functions that are offshore with Tata, but most all of the design works are done here onshore.

Senator CONROY: Sorry?

Mr Morrow : Most of the design work is done here onshore.

Mr Ryan : It is a blend of onshore and offshore activity.

Senator CONROY: Are we talking 51-49? Is it all of the Tata people you have brought onshore? When you say the designs are done onshore, is it Tata doing most of the design or do you have two or three companies doing the designs?

Mr Ryan : We have three companies doing the design of the FTTN—Telstra, Tata and Kordia. Within the design process there is a component of desktop work that gets undertaken. I suspect most of that gets done offshore. But then a large portion is actually field-based activity, where we are actually out there proving the network, locating the nodes, et cetera, and also engaging with all of the regulatory bodies to get the necessary approvals to deploy the network. Obviously, all of that activity is occurring onshore.

Senator CONROY: Can you take us through the problems you have been having with your design that Mr Morrow alluded to. Can you just take us through what your problem has been. In a previous life I would have referred to it as a 'pig in a python' in my world of getting designs done. Give me your analogy.

Mr Ryan : It is important to know this when we talk about designs. In the rollout of the FTTN network we initially started off doing that under the JDWC arrangement with Telstra, which proved to be very successful. That construction is now finished and it is now working its way through release for service. In parallel with that we put together two major agreements—the PDSA, which was for design services with the three companies I just mentioned, and the MIMA, which is for the construction of those. So specifically what we are talking about here is the design challenges we have had under the PDSA agreement, which is with those three companies. This was where we embarked on a new technology with a new agreement with new delivery partners. As we have worked our way putting the first of those designs through that process we have encountered some challenges, which is not surprising. Those challenges have been a combination of operationalising our utility power approval agreements, working with the asset owner, Telstra, in terms of the transfer of data and information back and forth, and getting the new delivery partners, Tata and Korida, up and going working to NBN standards and to the new processes.

Senator CONROY: Does the 83 megabits average speed on FTTN include FTTB, because usually when you give us stats you put the two of them together?

Mr Morrow : I believe it is. John Simon, can you confirm that it is FTTB and FTTN?

Mr Simon : I would have to take that on notice for that statistic.

Mr Morrow : We will find out for you.

Senator CONROY: Thanks. Reports have emerged recently about nbn co's fault rectification process for its fibre-to-the-node network. Apparently a user experiencing up to five resync events a day—most normal people would call them 'dropouts'—is considered acceptable by nbn co, which is to say 'not a relevant scenario for the purpose of logging a fault'; is that correct?

Mr Morrow : That is correct the way that document was written there—this is power surges could occur that could affect and reset or restart the modem.

Mr Simon : If I can clarify that. I think we talk about more a range of between 2.5 and five being considered as to whether an investigation needs to take place on resyncing. As we all know, on a metallic line you can get interference. It fundamentally deals with—

Senator CONROY: Yes, it might rain.

Mr Simon : Rain is not normally a metallic interference in the sense of driving a signal into the line.

Senator CONROY: Explain that to my modem.

Mr Simon : In an environment where there is a lot of resyncing taking place it is normally the case of in-house wiring and you have to put in an in-home splitter. Based on the level of in-home splitters that have been installed to date of the current 30,000 active users, it would seem that we do not have a major problem here because we are talking about dozens of installs that I am aware of that have gone in. I think you are referring to a document that might be a training document that we issued to RSPs about dialog and getting input on how we run service assurance.

Senator CONROY: I just want to know whether five dropouts, where you have to reboot your modem, is an acceptable level of service from nbn co in this day and age. Personally, if my line dropped out five times, I would be pretty filthy.

Mr Simon : There is no guarantee that the line drops out. There is a resync. It could drop out or it may not. Clearly if that happens the end user rings their RSP and we will investigate it and work with them to try to determine the cause of the issue. No-one is saying that it is acceptable. It is an inherent environment, similar to ADSL2 today on metallic lines. The clear indicator of whether there is a systematic problem is whether an in-home splitter needs to be installed.

Senator CONROY: So should it be mandatory?

Mr Simon : No, because it is clearly a minority—

Senator CONROY: So it is the consumer's fault?

Mr Morrow : No, of course not.

Mr Simon : I did not say that, and you should not put words in my mouth. I would appreciate it—

Senator CONROY: You are in charge of customer service, aren't you?

Mr Simon : I am the chief customer office, and I in no way said those comments. They are your comments, and I take offence at what you are saying.

Senator CONROY: I take offence at an nbn document that says that five dropouts is okay.

Mr Simon : It does not say that.

Senator CONROY: That is exactly what it says. A user experiencing up to five resync events—I said 'up to five'—a day, otherwise known as dropouts, is apparently considered acceptable. That is exactly what it says. I did not say five; I said 'up to five'. I read it very specifically. I take offence, Mr Simon, that nbn co thinks that that is acceptable. If my kids were doing their homework, and the modem kept dropping out, resyncing or whatever word you want to use as code for 'not working properly', or if I had a child being monitored on health, I would find it very distressing that you think that it takes five before you do something about it.

Mr Simon : That is not what it says. We would more than happily investigate any log, any claim or any ticket that comes in from an RSP. That is what we do, whether it is one, two or five. If there were a systematic problem, we would repair that problem and even advise to put an in-house splitter, if required to solve the problem. This is a diagnostics training document to help with the way our RSPs engage with us. It does not reflect the care that we take in getting the service to the right levels.

Senator CONROY: So what level are you saying? You are saying that this is not a real document; it is just a training document for feedback. What are you defining as an acceptable rate?

Mr Simon : I am simply responding to your comment that we say that we think that five dropouts a day is something we would not investigate. Clearly we would investigate that. Clearly we would try and remediate that.

Senator CONROY: Your document does not say that. Give us a number. Is it one, is it two, is it three, is it four, is it five? Pick a number.

Mr Morrow : Can I put this in context.

Mr Simon : Each time could be different. I am not going to pick up a number; you know that that is not realistic. We will investigate any call that an RSP puts to us. We have test and diagnostics tools; they can use those. If the best fix for a solution is to put in an in-home splitter, we will put that in. But the number of in-home splitters that have been installed is very, very small, which indicates that this is not a symptomatic issue.

Senator CONROY: If I could clarify what Mr Simon said there, I thought he had said earlier that most people had put a splitter in so far. So I am just trying to clarify what you said there: most people have not?

Mr Simon : Have not.

Senator CONROY: Most people have not so far?

Mr Simon : Have not.

Senator CONROY: Thank you.

Mr Morrow : If I can put that in context: any kind of power surge is an issue for telecommunications networks. We have lived with this since telecommunications started. Of course, digital transmission is a little bit more susceptible to these sorts of things. With ADSL service that is out here, it is quite common. Anywhere where you are deploying this sort of VDSL service, VDSL2, with the extra vectoring that we are putting on it, if you have a power surge it is going to have a little bit of a reset. That is just a fact of the way that characteristics of the network work. All that this document is doing is pointing out to the RSPs that this could happen. If they report anything—if they report one—as Mr Simon said, we are going to investigate that to see if in fact there is an issue or if it was a one-off event because of a certain kind of surge that managed to get in.

Senator CONROY: I am struggling to believe that all of the dropouts are being caused by power surges. Water causes a problem in my street, in my house. When it rains, my service is degraded—using the copper. So can we stop the pretence that it is all about power surges?

Mr Morrow : Those are two different issues. It is not fair to call these dropouts. Again, these are surges that occur on the line, which might require some sort of retransmission of the session that you are involved in on digital communications going back and forth. As far as a dropout, like you consider your phone dropping out, that is a disconnect within the network, which may have a copper fault that exists out there. That is something entirely different. That is not what this is related to. That is not what the language is saying.

Senator CONROY: But we accept that it can rain in my street and my broadband service does not work because of the rain?

Mr Morrow : That is a different matter. It is not the electrical surge issue. This is actually a degradation of the line. The capacitance that exists within, the attenuation factor, is affected by water that would seep into a joint. That is a different issue.

Senator CONROY: So you will investigate each call, not wait for five dropouts or sync problems—or whatever you want to call them with the word games?

Mr Simon : Just to make it clear: if an end user calls an RSP and makes a complaint about service quality and the RSP then puts a ticket in to us, we will investigate those tickets. That is what we do. There are a range of things that we do—for example, the modems settings have two settings, one which is referred to as stable and the other one which refers to what effectively gets the most deterministic speed. Getting the most deterministic speed is sometimes more open to noise interference. So at times we will request to flip the modem setting back to stable to try and remove some of that noise that is coming down the line. So there are a range of options that we take. Generally speaking, those resync events you are talking about are effectively because of noisy lines. Home wiring can be a cause of that, as can faulty joints in the network. If there is a faulty joint, we will obviously repair it if it is not getting the speed that the customer has basically asked for. Sometimes it would require an in-home splitter to resolve the problem for in-home wiring. But at this point, based on the 30,000 active users we have seen, a very small number, I think it is less than 50, have in-home splitters installed.

Mr Morrow : Can I give you the answer to a couple of your questions? On the HFC modems, we have the number that have been ordered.

Mr Rue : We have 1,000 in inventory and we have ordered another 17,000.

Mr Morrow : So there are 18,000 that are either on site or in order and will be here over the course of the next month or two. Those are 3.0 modems. The 3.1 modems have yet to complete testing. Until that testing is complete, we will not put the order in.

Senator CONROY: So you are supplying 3.0 modems, but there is a patch?

Mr Morrow : We will supply some 3.0 modems in the beginning and come back later and retrofit those to 3.1.

Senator CONROY: So one of your earlier discussions was that you had put a 3.0 modem in and then there was a patch that could be downloaded into it to make it compatible with 3.1, but you are now saying that the 3.1 modems are the ones that you will go back and retrofit?

Mr Morrow : We have always known that. The modems themselves will require a change out from 3.0 to 3.1 but the patch would be on the CNT equipment side for the uplink element of it to have 3.1 capacity. That is a patch that would be loaded. So 17,000 3.0s are ready to go as soon as the testing is complete on 3.1.

Mr Rue : The power cost per node is about $5,000, which is about $30 a premise.

Mr Morrow : And the 20 Tremain Avenue, Kellyville address is, in fact, an FTTN area.

Senator CONROY: Even though it has an HFC cable in the street?

Mr Morrow : It could very well have an HFC run into a different area that is not served by that—

Senator CONROY: So it is just a coincidence: it is passing through, even though someone on that street has an Optus connection?

Mr Ryan : It could be. Again, I have to double check. It is certainly our intention not to do it. Let me get the specifics as to what has transpired at this location.

Mr Rue : You asked about the RFP for modems. That was October last year.

Senator CONROY: Opened or closed?

Mr Rue : Closed.

Senator CONROY: Thank you. Mr Morrow, you are aware that AT&T has decided to dump fibre to the node, like most other carriers around the world? You are familiar with that decision?

Mr Morrow : We have just had some conversations with the US carriers, and I think FTTN is going to be used for a period of time and then upgraded after that.

Senator CONROY: Upgraded after that to?

Mr Morrow : I think pushing fibre further down the street is the intent in certain areas.

Senator CONROY: Are you not able to say FTTP? Is there a blocker in there? You cannot be regarded as a fibre zealot?

Mr Morrow : I do not know if they are going to use an FTTDP or if they are going to use FTTP all the way up to the home.

Senator CONROY: Verizon is shutting off its copper network. It is going to be hard to use FTTDP if they shut the copper network off.

Mr Morrow : Verizon is not shutting off the copper network. Again, I am happy to explain about the US. As you can tell from my accent, I am from there. I have built networks there and run companies there. We have just completed a round of discussions of talking to a variety of people across the US, both operators and technology suppliers.

There is an interest in going further down the fibre path in the US, but it is driven by Google. They are a lovely company that care more about their ad revenue. They do not believe that carriers are putting enough fibre in the ground, so they are going to do Google Fibre. They are highly selective about where they are putting their fibre into the ground. They are not going to do universal coverage like we are. In fact, we will end up having far more fibre than they will, in the end. But that has prompted some marketing responses from Verizon, AT&T and even Comcast. They are responding with more fibre than they would have done otherwise. But in no way is the entire nation going to get fibre built out across the land, and it will continue to use—

Senator CONROY: I was not suggesting that that was likely any time soon in the US. I just appreciated your point.

Mr Morrow : But they do like fibre and they are pushing it in. They are driven from a marketing point of view. We would even ask the question: do any of these carriers feel that they need a gigabit-per-second service? They said, 'No. It's driven by the marketing response.'

Senator CONROY: Are you aware that Portugal has now announced that it will retire its old copper network and move to fibre?

Mr Morrow : That is great news for Portugal. How long are they going—

Senator CONROY: Tragically, not great news for Australia but great news for Portugal.

Mr Morrow : Who is going to pay for that in Portugal, would be my next question.

Senator CONROY: We heard from nbn co's own build contracts in Victoria today that the local fibre network in Karingal-Ballarat, using the new skinny fibre architecture which you have mentioned, was built on schedule, quickly and successfully. We have heard testimony from Corning that the skinny fibre equipment used in Karingal and Ballarat was successful, and the testimony from Broadspectrum and Corning confirms information from inside nbn co that the new skinny fibre architecture reduces dramatically the cost of the build of the LNDN—that is the fibre network from the fibre exchange to the front gate. It has reduced civil construction costs. We talked about how you no longer needed the fibre distribution hubs and how you did not have to augment the pits. It has been a serious bugbear in the past. Because it was skinnier fibre, you did not need to do as many conduit upgrades et cetera. That is all consistent with your understanding of this?

Mr Morrow : With the exception of the upgrades, yes. There is an issue with skinny fibre. You are actually putting less fibre in the ground, so you have less chance to upgrade—

Senator CONROY: No, I was talking about the upgrade of the conduits, not the actual—

Mr Morrow : Yes, indeed. There is less civil works.

Mr Ryan : Less remediation of the existing infrastructure, yes.

Senator CONROY: Yes, less remediation of all of the necessary existing infrastructure which you have rented, combined with no longer having to do civil works for an FDH. They brought along the sort of equipment that you put into the pit in the front door. All of you are familiar with all of that, Mr Ryan?

Mr Morrow : It is lovely. We are excited about it.

Senator CONROY: Does the new skinny architecture, otherwise known as MT-LFN, result in savings in the build of the local fibre network? I think you made reference to that in your opening statement, Mr Morrow.

Mr Morrow : I did, yes. Our preliminary view is about $450. It is still a little bit early. It could be a little bit more—hopefully not a little bit less.

Senator CONROY: I thought the estimate was going to be a saving of around $700.

Mr Morrow : No. I think there was a paper analysis that was done upfront. In fact, I think Mr Steiger's office could do that. He could speak to this. It had, on a design basis, $600 to $800 potential savings. In terms of the actual invoices to date, we think it will be $450. But again it is a little bit early. We hope it is a bit more than that, but that is something that we can take to the bank at this point.

Senator CONROY: I want to talk about FTTDP. I will just call it DP for simplicity. We heard testimony from Corning today that their new, small form splitter multiports, which sit in the pit outside the house, have the flexibility to accommodate either a fibre drop to the house or just a connection to the existing copper lead-in. Are you familiar with that, Mr Ryan? That sounds right? This suggests you could roll out fibre to the gate, otherwise known as DP, for a cost of about $2,000 a premise or, if you include the famous $700—Mr Rue's mum's birthday multiplied by Everton's goal difference over Chelsea—

Mr Rue : That would be a very high number.

Senator CONROY: A very high number. If you throw in the duct lead, it is about $2,700.

Mr Rue : It is close to $2,800, but yes.

Senator CONROY: I am struggling. I really do not get how you could possibly want to keep using an FTTN situation when clearly DP is plummeting in cost and may come in even closer? I am genuinely confused. Will you look at a study?

Mr Morrow : The first thing that we are doing is we are interested in dropping this cost down, and we really are excited about this combination of fibre to the distribution point using skinny fibre. It is now $400-ish—maybe a little bit more at this early stage—between the cost of FTTN and that of FTTDP using skinny fibre. That has opened up so many more opportunities. We see a couple of hundred thousand homes that would otherwise be getting FTTN or fixed wireless that this now has passed over and broken over into the faster, cheaper driver that we have. Because of that cost difference still, it has yet to reach the point of being cheaper than fibre to the node—and remember HFC is even cheaper than that, but it is yet to reach that point of being quicker and cheaper.

Senator CONROY: I do not want to pull you up on the exact words of your remit. Minister Turnbull's letter does not quite say 'fastest and cheapest'. It says 'cost-effective'. When you look at the other costs involved, beyond just pure capex comparison, I do not understand how it is possible for the company still to be going down the path that it is going. This is not new stuff. This is something that was kicked around over two years ago. Mr Morrow, you were brought into the company as a change agent, someone whose job it was to overhaul it and get it back on track. That is your reputation. That is what you are proud of. That is what the government tout. I find it extraordinary that you are still going down this path. Have you recommended to the board that this should be the preferred path?

Mr Morrow : We have had discussions at the board about the use of this technology. They are quite excited about it as well. I would say that they are pushing us quite hard to find ways to reduce the cost—to reduce the time to build even more so. We had had the discussions about what the DP could do and its potential when combined with skinny fibre when we learned of this some time ago, and the question that comes back is: is this a technology that can be faster and cheaper and/or reduce the peak funding from where it is scheduled to be today? And the answer is: no, not yet. Therefore, we are steady state on the technology mix. This is one that is increasing in terms of the volume. Dennis's team was the one that was charged with coming up with faster, cheaper ways with technology. It came up with some of the architectural issues that Pete's team then took over to try this. We will continue to push down that path.

Senator CONROY: You could continue just to compare capex to capex and ignore ongoing cost, and we have just been through a lengthy discussion about your fault rate. I think you would agree it is much higher on FTTN.

Mr Morrow : It is what is expected on FTTN, but there is a higher fault rate with copper failures than on fibre. That is true.

Senator CONROY: In terms of DP, because you are using far less copper, there has got to be a substantive reduction. I do not understand how your maths does not come up with a significantly reduced maintenance ongoing cost. You are a technologist; you understand this. Did you recommend it to the board? Did you recommend that they should look at this?

Mr Morrow : Management looked at this and, as we are always challenged to do, we came come up with a couple of what-if scenarios. We did come up and say, 'All right, as we enter into the fray of coppering the local network bit'—that is the graph up here closest to the arm—'this could be a suitable replacement, if we can ever get the cost down to a level that is close to FTTN.'

Senator CONROY: But you have got the costs down, and in any mass production of anything you get a cheaper unit cost than just ordering and saying, 'Hey, let's just test this out for a few thousand.' If you start ordering a couple of million, you will get the cost per unit down. You understand this technology. Mr Ryan understands this technology. Mr Steiger certainly understand this technology. I find it extraordinary that the board is ignoring your recommendation.

Mr Morrow : There is no ignoring. Remember that the board is also charged by the statement of expectations to do this as fast as possible, at the least possible cost and make sure that there is an upgrade path. We see DP as a great upgrade path, to be able to take the node and push that fibre closer to the house. We know that even some in the Labor Party—letters that Jason Clare has written—endorsed that sort of concept. We want that crossover point; we would love to find ways to be able to put more fibre in. You like to joke about fibre zealots; we are all fibre zealots. There is no power issue. There are lost maintenance elements, but it is still more expensive and takes a bit longer.

Senator CONROY: When you look at your maintenance costs—your opex—and add that into the equation, where you have such a narrow margin within your capex, you cannot seriously still think that the numbers do not stack up. I cannot understand a board that cannot accept your recommendation that says, 'This is the path.' You have just said that other companies around the world are already looking at this, even companies that have been quoted favourably by Minister Turnbull are doing this I cannot understand how you put forward a recommendation that says, 'This is what we should do,' and the board says to you, 'No, keep going.' Help me out here.

Mr Rue : We are looking at it; it is not true to say we are not. There will be areas where the costs of rolling out DP will actually—

Senator CONROY: You have done the numbers now for a couple of years now, Mr Rue. When did you first put this to the board?

Mr Rue : We have had ongoing discussions over a number of—

Senator CONROY: When did you first say to the board, 'This is what is available.'

Mr Rue : I could not tell you exactly, but if I was guessing, I would have thought about 12 months ago.

Senator CONROY: You made a recommendation 12 months ago?

Mr Rue : There was no recommendation. There was discussions with the board about additional technologies that could be—

Senator CONROY: You went and put this in front of them?

Mr Rue : We discussed additional technologies—

Senator CONROY: You put in front of the board the FTTDP option and said, 'Look at this.' You did not do it because you thought it was worse off; you did it because you obviously thought it was going to be better.

Mr Rue : That is too strong a statement.

Senator CONROY: Did you put it forward to them because you thought it would be worse?

Senator JOHNSTON: Can the witness answer the question once and once only?

Senator CONROY: I am trying to be very clear that you did not take forward a proposition that you thought would be worse. You thought it would be better?

Mr Rue : Can I answer? The answer is that we discuss many things with the board. We discuss additional technologies we can put into our kit bag to use, as our engineer like to say, one of which is DP. We did not bring a recommendation; we brought a discussion around an evolving alternate technology, which is really no more than that.

Senator CONROY: So you put an alternative in front of the board?

Mr Rue : It is effectively an alternative to fibre-to-the-node technology. To answer your question, there will be times when DP will be cheaper than FTTN in some areas. For example, where there are long-length loops, you would have to have additional nodes to provide speeds and so on. The other point to take into account is that, apart from the fact that this is very much leading-edge technology, it is very much evolving.

Senator CONROY: It looked pretty straightforward when Corning were holding up fairly simple connector sets.

Mr Rue : I will let our technology guys talk about it some more, particularly Dennis. It is still early days, but the fact of the matter is it will take longer to roll out. When we look at total cost, you are right that you have to take into account operating costs and you have to take into account capital expenditure. You also have to take into account revenue delays from additional rollout length, which add to the cost of the whole program of work. When you take all those into account, unfortunately, at this point in time it is still more expensive to do full-scale DP, which is what you are suggesting—

Senator CONROY: I am not recommending putting it forward as an alternative to FTTP. Let me be very clear about that. What I am trying to understand is how—

Mr Rue : I understand that, however, we would be very enthusiastic in using DP technology when it fits in to the statement of expectations that we abide by.

Mr Morrow : This is where we already see the opportunity, and that is what we get excited about. Let me give you a scenario of FTTN. There are some areas where, when we put the node in, there are going to be fewer homes than the average served by that node. That takes the cost per premise up substantially more because it is one fixed cost for that node itself. With those low-density areas and this reduction, with skinny fibre and the introduction of the DP unit not having to replace the lead-in going up to the home, it suddenly crosses over and is cheaper than those FTTN slated areas. Then you look at the time window underneath. It all makes sense from a timing point of view and an economic point of view. Again, as I said, we think that there are hundreds of thousands of applications now where this would replace other technologies that would be more expensive. If those prices can continue to come down and Pete's team can continue to find ways to shave more weeks, more months, off that construction build, then we will move in and use this technology over that of FTTN. That is our objective. That is what the board wants us to do. That is what they push.

I would also like to point out that, with the board, we are charged, every year, with coming up with brainstorming strategic alternatives that we present to them. We are going to be doing it again. The work is underway right now for this planning period. That is where we come in and say: 'Listen. Let's think about this differently. What if we went down this DP path as a potential successor to FTTN?'

Senator CONROY: Not a successor, a replacement. You are not talking about putting it on the end of it. You are talking about replacing it.

Mr Morrow : That is what I mean. 'Successor' is the wrong word—in lieu of FTTN. That is when the board says: 'Great. We want best performing. We want high reliability. But it's got to be the quickest way to get it in and the least possible cost with an upgrade path.' It did not meet the criteria then. It may not meet them at this moment right now, but we are working hard to see if it can meet them going into the future. The board would be very supportive of that, in my view. I think the government would be very supportive of that, going down the path. It is just not quite yet there, but we have made a major step forward with this trial and with this DPU technology.

Senator CONROY: I come back to: I am struggling to understand how you put forward something where you have got the life-cycle costs, replacement costs, upgrade costs—all of those have got to be factored in over a 30-year project, which is what you are doing in terms of the length of the network—and all of that somehow the board rejected. Mr Rue, were you not able to show the replacement, upgrade, maintenance, electricity costs? Did all those extra things not get factored into the discussion, and they just went 'We're going to compare purely capex to capex,' ignoring all of those other costs, including replacement costs?

Mr Rue : Sorry if I was not clear in my answer. Firstly, it was not a recommendation of the board, as Mr Morrow has said. It is ongoing discussions, including, once a year, a strategy discussion. When we look at costs, we look at peak funding but we also look at what you just described—upgrade paths. At this stage, as Mr Morrow has said, it does not quite fit the criteria that we live by.

Senator CONROY: Again, I come back to this argument that it does not say 'cheapest and fastest'. That was a political slogan going into the last election, and that is still run today, but that is not what your actual letter says. The letter says something a little more sophisticated than that, because that is a political slogan. When you look at the effective life-cycle costs of the material, you look at what future demand is going to be—and last year it jumped 40 per cent—how on earth can the board have ignored an alternative that you put forward which is clearly superior?

Mr Rue : Just to be clear, when we look at technology selection, we look at lots of things. We look at peak funding. We look at net present value. We prioritise areas—for example, underserved areas. So there are many criteria that go into a selection of a technology, including upgrade paths.

CHAIR: Do you also include customer satisfaction in that formula?

Mr Morrow : We do factor that in. That is why we said in the opening statement that people who are generally close to the satisfied level are the same as those for fibre. Again, this is under the current way in which the networks are being used, and the acknowledgement and acceptance that you are going to have a certain number of faults in there. I think there is a difference between the two, but right now that is not said by consumers to be a major issue.

Senator CONROY: As I said, I find it extraordinary that the board could have ignored this option 12 months ago. Certainly, I find it extraordinary that given the information we have about how the actual node network is performing on the ground—somebody has just emailed in, saying, 'I've been using FTTP for 15 months and I have not had a single dropout of any sort; water- or power-surge related,' that mysterious surging power all the time—that when we start to compare those things, which have to be part of the equation for your maintenance costs, they can ignore an alternative that you have put before them. It is absolutely extraordinary.

Mr Morrow : Again, I think you would find that in the six months since we launched our service there are people who have not had a dropout yet on FTTN. We do not have any longer record that that to be able to show that. But, again, as you are very well aware, for the current direction the objective is to get the nation good, high-speed broadband and to do it in the least expensive manner possible. So that is what we are running to.

We looked at all sorts of other alternatives. We want to change the direction of some of the technology and we want the best possible technology in there as well. Until we have another breakthrough that passes that element of cost—and the FTTN cost factors in all the cost of maintenance and all those other elements that we know are still on the top line—we know that FTTN is still cheaper from a peak funding point of view and is faster than the FTTDP with skinny fibre. But if we can find that breakthrough on it we will. There is no-one telling us that we have to use FTTN; we were just told, 'Let's get the country connected as quickly as possible at the least possible cost.'

Senator CONROY: I find it absolutely irresponsible of the board to ignore what is happening in New Zealand. You have seen the reports of significant costs falling for fibre-to-the-premises rollouts by adopting similar sorts of architecture to what we have seen displayed here physically this morning, with it being held up as an example so that people could see what we were talking about. I find it extraordinary that the board can continue to ignore this option—this alternative—which you put before them 12 months ago. I find that extraordinary.

Mr Morrow : Again, I do not think they are ignoring it at all. This is quite an engaged board—very capable and competent. They are always looking, and pushing us for alternatives. I can assure you that even with the results of the skinny fibre it is, 'That's not good enough; what else can we do?' So we are always looking at that.

There is not a doubt in my mind that if we got close to this having a higher peak-funding level, or delaying the 2020 rollout, that the board would say, 'Go for it.' I am convinced that when we can hit that threshold they will direct us to do so. But while the directive is against—

Senator CONROY: So millions of Australians have to get a second-or third-rate network, in terms of FTTN, because the board does not believe the advice that it has been given by its own executives?

Mr Morrow : John, can you speak about some of our customer and user opinions on FTTN that we have been collecting data on recently?

Mr Simon : Sure, Bill. We are in the process of doing a deeper core of sampling. However, of our current most recent sample we have a net promoted score of positive 18, which is very good for an early service that has just been released. It has further improvements to make in the installation process. Value for money is 7.1 and we have an advocacy score of 36 per cent, which is the peak number of people who have already recommended the service. These are positive.

We have picked up certainly in the connection process that some of the end users have not had the right modem shipped to them and that has caused the appearance of a line drop or a line disconnect, but the lines have not been disconnected; it is because they do not have a correct modem. Obviously that is a teething process in the early ride of this service. We have been working with RSPs to correct that. That is the No. 1 driver of dissatisfaction, because it obviously appears that the service is not available and their lines have been disconnected. We will fix that by working with our RSPs, but, generally speaking, we see that this is a good and positive indicator. If I look back to FTTP 18 months ago when it was going through a similar improvement program to lift capability, we had value for money of 7.2 versus FTT and value for money at 7.1; a net promoter score of plus 19 and FTTN was plus 18. So you can see there are some similarities. FTTP overall satisfaction was stronger at the time—7.4 versus 6.9—and, as I said, that is driven largely by the installation issue, dealing with the line appearing as unavailable or disconnected.

Senator CONROY: With the digital world that we have coming, Mr Simon, that sort of survey is meaningless. I want to make it absolutely clear: 12 months ago, roughly, according to Mr Rue—I will not hold you to 11 or 13 months—nbn management presented the nbn co board with an option to dump FTTN and roll out FTTDP. That is correct. That is an option—an alternative.

Mr Morrow : What we presented is advancements that we have seen with EPU technology and how that could be used. If this were earlier when we were still looking at all of the uncertainty behind the quality of the copper network: how the data transfer was going to occur from Telstra and what it would cost. Again, it had been built into the corporate plan that we would have to pay Telstra to be able to move that data over to our databases. As the board is always pushing for alternatives, we said, 'Here is one that we could consider as an alternative to FTTN.' The board was bright eyed, raised eyebrows and said, 'Great, let's hear it.' While it looked interesting, the board felt it was a bit premature because it was still more expensive than FTTN and would delay people getting broadband. I would say the answer is: not yet; keep working on it and come back when you get closer to the fastest and cheapest.

Senator CONROY: You are the experts. You put an alternative to the board nearly 12 months ago to replace FTTN with an alternate, FTTDP. That is just a fact. We have established that, but it is up to the board how they respond.

Mr Morrow : 'Recommended' is too strong—

Senator CONROY: No, I did not say that. I said you placed before them an alternative to replace the FTTN rollout with FTTDP based on all your gut instincts, your expertise. Mr Steiger is one of the leading technologists around; Mr Morrow, you have done it; Mr Rue, you looked at the numbers and this went forward. The board said no. That is not a reflection on you, but the board said, 'No, keep going.'

Mr Morrow : The board got excited and we said that, if we wanted to do this, it would raise the peak funding envelope and delay the rollout. The board did not have the appetite to take that on.

Senator CONROY: Thank you. Thank you, Mr Steiger. I apologise: I have not got back to some of the other questions that I wanted to pursue. Are you out for the rest of the day completely?

Mr Steiger : If you need to ask some questions, I will try to make myself available.

Senator CONROY: Thank you. If we get to a slot, we will try to send a message: 'Hey, we've got half an hour should you be available.'

Mr Morrow : Give us the flexibility in time and we can ping him and he can make arrangements—

Senator CONROY: Thank you. I appreciate that. Thanks, Mr Simon. I appreciate you coming in at short notice. I do not have a lot of questions, so it would be a short time. Some of them may be about the product roadmaps. We will try to get to you, but if you are tied up I do appreciate that. You came in at short notice and I thank you for that.

Mr Simon : I have some external meetings, but—

Senator CONROY: If you are out of the building, I understand. Thank you, Mr Simon. Thank you, Mr Steiger.

Proceedings suspended from 12:15 to 12:32

Senator CONROY: Mr Mayberry, the committee has requested your attendance today because we are under the impression that you had some oversight of the NBN build in the field in Victoria; is that correct? Is that your role at nbn co?

Mr Mayberry : Yes, it is.

Senator CONROY: Are you familiar with the skinny fibre—hopefully you are familiar with that phrase; your construction partners were not—deployments in Ballarat 10 and Karingal 7? Did you have visibility of those builds?

Mr Mayberry : I did insofar as I had supervisors of mine working on the oversight of the builds.

Senator CONROY: Was that supervisor working on both of them or one of them?

Mr Mayberry : No, I had a team of supervisors in the region—

Senator CONROY: They are two very different regions, Mr Mayberry—Karingal and Ballarat. There is a bit of a distance between them. Can you tell us the names of the people who supervised Ballarat 10 and Karingal 7.

Mr Mayberry : The supervisor for Ballarat 10 was Chris Wyatt.

Senator CONROY: And for Karingal 7?

Mr Mayberry : That was predominantly covered by Wayne Benson.

Senator CONROY: Thank you for that. I can see that Karingal 7 and Ballarat 10 were ready for service on schedule. What date did construction of Karingal 7 and Ballarat 10 start on?

Mr Mayberry : I could not give you a definitive date.

Mr Morrow : You can take it on notice, if you like, Brian.

Senator CONROY: We called him to answer questions about these two builds. Mr Mayberry, do you have a rough date?

Mr Mayberry : No, I would have to take that on notice.

Mr Ryan : I think they commenced around the middle of last year.

Senator CONROY: I am looking at your own documents—

Mr Morrow : You are trying to find out when the construction physically started?

Senator CONROY: When did it start and when did it finish?

Mr Ryan : We should be able to get that information.

Senator CONROY: The construction time line is right here in your own documents. Nobody at this table seems to know their own documents. It has been reported in the press, Mr Mayberry, that the start date was 29 June for Ballarat and 6 July for Karingal. Does that sound about right? Mr Ryan, seems to think that is about right.

Mr Mayberry : If that is what Peter Ryan is saying then I will agree with that.

Senator CONROY: Do you need permission from him to answer any questions? Is that the arrangement here?

Mr Ryan : Maybe I can just clarify. In the construction of the network we have a project managers who are accountable for ensuring the dates are met and then we have field supervising staff who are accountable for ensuring quality and health and safety in the field. I am personally not surprised that Brian does not have instant recall of the dates because I would expect that more from the project manager than the field services manager.

Senator CONROY: I would have thought that, given he was called specifically to talk about these particular projects—

Mr Morrow : We had no indication as to what you wanted to ask Brian. We would have been able to help had we known that. This might be an opportunity for us going forward into the future. If you let us know, we can make sure we get the right person.

Senator CONROY: I have seen what happens when I give you advance knowledge of my questions, Mr Morrow. It does not work out quite as well as—

Mr Morrow : Oh, because you get accurate answers—I see!

Senator CONROY: No, that is not the case. I believe according to some information that has been rumoured, Mr Mayberry, they both finished practical completion around 14 December.

Mr Mayberry : I cannot give an accurate date. That is not something I measure in my role.

Mr Ryan : The date sounds about right. We would have to specifically check, but it sounds about right. I just want to reassure you that Brian is not being mischievous here. He is just not accountable for dates. Getting to practical completion of construction would have included the submission of certain documentation. Again, Brian is more in the field ensuring quality and health and safety.

Mr Rue : Senator, I do not have when it finished, but we will get that. But 3KAL-07 commenced on 16 June and Ballarat 10 on 5 June.

Senator CONROY: I see that they were both ready for service on schedule, so congratulations, Mr Mayberry. That was good work. Are you familiar enough with the two FSAMs to confirm that the build process—and I think even Mr Morrow has confirmed this—was at least four weeks faster than for other FSAMs around these ones?

Mr Mayberry : Yes. I could probably confirm that.

Senator CONROY: Were build drops done for Karingal 7 and Ballarat 10 as part of this build, as in the fibre drops from the front gate, effectively, to the home?

Mr Mayberry : Yes, they were and they are also being done as a separate part of that package.

Senator CONROY: Just to be clear, Karingal 7 and Ballarat 10 were 100 per cent fibre-to-the-premise builds?

Mr Mayberry : I believe so, yes.

Senator CONROY: So there was no FTTDP trial; it was pure fibre to the premise?

Mr Mayberry : As far as I am aware, yes.

Mr Morrow : Senator, can I clarify something, because I feel bad that you are not going to get the answers you are looking for because Brian is not the person, I think—based on the questions I am on hearing—that should be answering this. Brian is responsible for health, safety and quality of a given regional area, and he is out there with his supervisors in trucks making sure people are keeping the community safe, making sure workers are performing safe practices and making sure that there are no policy violations. He is not responsible for the delivery of the construction side of it. That would be a different manager.

Senator CONROY: Who would that be, if I wanted to talk to them?

Mr Morrow : Maybe we can try to get that person, see if they are available and see if we can get them online.

Senator CONROY: Who would it be? Apologies, Mr Mayberry; we are just haggling over your title and role.

Mr Morrow : If you are looking for somebody at Brian's level, we will have to double-check these specific areas and we will get that name. If you want someone that would be at Brian's superior level, we can get them, hopefully, available on the video before the end of the select committee hearing today.

Senator CONROY: You do not know who is in charge of the construction?

Mr Morrow : For that particular area, again, if you want it at Brian's level—

Senator CONROY: I repeat: Ballarat and Karingal are in very different parts. You keep saying 'that area'. That area covers two-thirds of Melbourne.

Mr Morrow : Then it may be two people, unless you want to go up higher.

Mr Ryan : We have project managers, who we term deployment managers, and they have different geographic areas they look after, so I would just need to go away and double-check which areas these SAMs fall into.

Senator CONROY: I am sure somebody watching would be able to send an email on your behalf.

Mr Ryan : I suspect that is the case.

Senator CONROY: Mr Mayberry, could you take us through your role in these two areas? Mr Morrow just briefly touched on what you did. Could you help us out there?

Mr Mayberry : My role is, as we said before, that I am responsible for the safety and the quality of the build that our partners are building. I manage a team of 25 field supervisors in the region, which does cover the entire Australia.

Senator CONROY: In an on-the-ground sense, you do spot checks, audits—you go around and have a look. What would your day-to-day role be?

Mr Mayberry : Ongoing checks. We monitor the build, as far as how it is progressing. We record back through a system called Atlas, on the quality. We have an ISO system to record any safety breaches.

Senator CONROY: If I have questions around whether or not fibre distribution hubs were used in the rollout—there is a health and safety aspect to that, because of asbestos in pits—would that be directly under you? Any remediation and upgrade of pits that was or was not happening—you would have supervision of that?

Mr Mayberry : We do not have direct supervision of it. We oversee the construction partners as they are building it.

Senator CONROY: Are you doing checks on them? Given the disasters in the past where some of the construction partners were not able to supervise their own subcontractors themselves, you would be keeping a fairly strong eye on that, I suppose.

Mr Mayberry : Yes, it is one of the many things that we check on a site.

Senator CONROY: What are the other things that you check on the site?

Mr Mayberry : General site safety, public safety, worker safety and ensuring the nbn brand is not affected.

Senator CONROY: How are you going? I know that in the very early days there were some issues around health and safety. Early on, it was an overhead build in Tasmania. How is the health and safety side of it going? Are you 100 per cent safe at the moment? How is that tracking?

Mr Mayberry : I have got no right to comment on those sorts of reports.

Senator CONROY: I was just asking if it was going well, that was all. I was assuming that you were going to give me a very good news story about how well it was going. Mr Morrow or Mr Ryan can release you from any fears you have so you can give us a rundown. I am sure it is a good news story. I am not sure why Mr Ryan or Mr Morrow would not want us to hear about that.

Mr Ryan : We track this very closely. It is obviously something that we are extremely cognisant of and find it very important. We do not, at the moment, see—nor have we been seeing—any health and safety issues that cause us any major concern. Obviously, there are problems from time to time, but there is nothing trending there that causes us any concern.

Senator CONROY: Mr Mayberry, would you oversee any pit or duct augmentation that was taking place?

Mr Mayberry : Yes, we do.

Senator CONROY: Given the change in architecture between Karingal 1 to 6 and Karingal 7, there would have been less augmentation of pits. That is certainly what Transfield Broadspectrum put to us. There were less civils done around the pits—around the hub, because it was not a hub. So you would have had less work to do—and I say that in a good sense, not in a bad sense—from a significant reduction in the civils.

Mr Mayberry : Yes, that is correct, in comparison to the other Karingals that you mentioned.

Senator CONROY: Given you have got more of the health and safety side of it, it would be best if we were able to find the person in charge of the actual rollout rather than health and safety. Thank you for that, Mr Mayberry, and keep up the good work.

Mr Morrow : Thanks, Brian. I appreciate it.

CHAIR: Mr Ryan, when do you think we might be able to get—

Senator CONROY: They will check. They will let us know.

CHAIR: a more appropriate person?

Mr Ryan : I would imagine fairly quickly.

Mr Morrow : Brian, you are done. You are excused. You can leave now.

Mr Rue : Senator Conroy, you asked when the build commenced and when it completed. Ballarat 10 SAM completion was 17 December, and it went to RFS on 29 February. Karingal practical completion was 18 February.

Senator CONROY: Karingal was 18 February?

Mr Rue : Yes, practical completion.

Senator CONROY: It has been suggested that the practical completion was in December.

Mr Rue : The RFS was 29 February. We will check that.

Mr Morrow : What we had reported was that we have just concluded this just weeks ago.

Senator CONROY: That seemed to go to RFS very quickly. From practical completion, that is a very short period compared to—

Mr Ryan : That is fairly standard for FTTP, because once we have physically built it—

Senator CONROY: Then my question will become: why did it go from 18 December to 28 February for Ballarat?

Mr Rue : We will check the date.

Senator CONROY: It does not quite gel; that is all. One of them being a couple of months later than the other does not gel. What date did you think Karingal was, Mr Rue?

Mr Rue : The 18th of February with an RFS 11 days later.

Senator CONROY: That is a fairly quick turnaround, given that Ballarat went from 15 December, I think you said, to 28 February. You can see I am just a bit confused—two and a bit months and 11 days.

Mr Ryan : Without knowing the specifics, we do go through a process where four months out we communicate to the RSPs exactly when an area will be declared RFS. There are times, therefore, when we complete the build and we will wait for that time to elapse before we actually release it. That is just to give predictability and certainty to the RSPs around where we are releasing footprint. Whether or not this falls into that category, I am not sure.

Senator CONROY: If you could confirm that, it would be good. Coming back to some slightly more generic issues for the moment, what is the current aerial-underground mix as a percentage for customer connect on FTTP? What percentage of fibre drops are underground.

Mr Rue : I think it is 13 per cent aerial, but let me confirm.

Mr Morrow : For which technology? Overall?

Senator CONROY: FTTP.

Mr Rue : I was not quite right. It is 16.6 per cent aerial, and obviously 83.4 underground.

Senator CONROY: And apologies for going back to this, but what percentage did the strategic review have above and below ground?

Mr Rue : I have no idea. Let me try and read it, see if I can find it. I will ask for some help if I cannot find it. I am not sure it was in the strategic review, actually.

Senator CONROY: In the corporate plan?

Mr Morrow : It would not have been spelled out in the corporate plan.

Senator CONROY: Don't say it: so far no-one has had to take a drink all day out there. People are actually dying of thirst now, because they have not been able to water board themselves or take a drink. So don't say the words, Mr Morrow; you will break the duck.

Mr Rue : It would not have been materially different from what I have just said. I do not know whether we would have spelled it out to a percentage.

Senator CONROY: It is just that my recollection is, roughly, the original Telstra footprint was a higher number than 16 overhead. I am just trying to understand how you have ended up with—

Mr Rue : I recall that as early corporate plans, certainly since I have been in the company it has never been 25 per cent. Perhaps Mr Ryan could explain the difficulties with doing more aerial.

Mr Ryan : We typically attempt to follow a like-for-like approach. So if your particular house does not have an aerial today then our first attempt is to go underground and re-use the existing LIC. In the event that we cannot, if you have got an existing underground then we try to replicate that, so we will build a new conduit. If you are aerial then we will seek to replicate that in the event that it is simple to do so. It is as simple as that.

Senator CONROY: How many lead-in conduits as a percentage of the nbn family are usable for fire drops?

Mr Ryan : How many again?

Senator CONROY: How many lead-in conduits, as a percentage, has nbn found are usable for fibre drops? How many can you actually slide the fibre through?

Mr Ryan : It is around about 60 per cent.

Senator CONROY: Okay. I recall it was about 70 per cent a few years ago.

Mr Ryan : In my time it has always sat around about that number. I do not recall a 70 per cent number.

CHAIR: What are the reasons that certain infrastructure is more usable than existing infrastructure?

Mr Ryan : As in the lead-in infrastructure?

CHAIR: Yes.

Mr Ryan : There are a range of reasons. Generally, it is purely down to degradation over time. For example, if you have a non-galvanised 10 millimetre conduit, which over time has rusted and it already has some sort of cable, over time that will naturally degrade and it becomes harder and harder for our crews to force a cable up through it. So it is pretty well down to the degradation of the existing conduit. A lot of them, being metal, in that 10 to 15 diameter range, rust up over time.

Mr Rue : I do not think the answer is for today but on 14 December it was 58 per cent existing.

Senator CONROY: Fifty-eight was?

Mr Rue : It is 58 per cent existing, 26 per cent new and 16 aerials. Of the nonaerials, it was 58 over 84—whatever that is.

Senator CONROY: So 58 per cent usable?

Mr Rue : Yes, 58 per cent divided by 84. So it is about 69 per cent of the underground were usable. I think the number that Mr Ryan is quoting is of 100 per cent and not of the—

Senator CONROY: Gotcha.

Mr Ryan : Correct.

Mr Rue : So it is about where you were.

Senator CONROY: What—70?

Mr Rue : It was 69.

Senator CONROY: Yes, 70. Okay. I want to make sure that we have apples and apples here. Sixty per cent are usable lead ins which is now out of 100 per cent?

Mr Rue : Yes, 60 per cent are usable, new is 24 per cent, aerial is 23 and nonaerial 17, if you like to round them.

Senator CONROY: So 77 per cent are aerial or usable?

Mr Rue : Yes.

Senator CONROY: And 23 per cent are new?

Mr Rue : Yes.

Senator CONROY: You might have done this for different named categories but can you break this down for the committee? What percentage of links are usable and what percentage are blocked direct buried? I think we have covered almost all of that but I want to make sure for my classification purposes.

Mr Ryan : Blocked—

Senator CONROY: How do you determine if it is blocked? Take me through your process.

Mr Ryan : How do we determine? The crew will arrive on site and the first test is if it is an existing underground feed to the house—we will test that to begin with. If it is blocked, then they will seek to duplicate it by installing a new lead in to the premise. They will follow a path that is as accurate as they can be to follow the existing path so that the point where we intersect the premise is pretty well the same as what is there.

Senator CONROY: In terms of MDUs, you have indicated that there are1.9 million—you have that in your new lead-ins—

Mr Ryan : Are you talking about in HFCs?

Senator CONROY: Yes, in HFCs, not in MDUs—just in HFCs. How many of those are direct bury and how many are overhead? Is it just MDUs? Walk me through what is happening with that 1.9 million.

Mr Ryan : In terms of the breakdown between MDU and—

Senator CONROY: None of them have an existing lead in. Are there some lead ins that are just not active? I am trying to understand. In the past, big things have been made of people who have moved house, taken their Foxtel with them and left a lead-in process so that you do not need to do quite the same amount of work. I am trying to understand how it works with the HFC lead-in issue. Are you direct burying lead ins? Are you doing them all overhead? What are you doing with lead ins for HFC?

Mr Ryan : In term of the 1.9 million number, that is our best estimate based on the data that has been provided to us by Telstra and Optus, based on their knowledge of their networks today. In terms of whether we go aerial or underground for the lead-in, again, we will seek to mirror the prevailing methodology. For example, the Optus network is predominantly aerial, so we will drop aerially into the houses. With Telstra's HFC network, which has a lot more underground, we will seek to use the underground lead-ins if available. We will use the most cost-effective, pragmatic way to get into the premise.

Senator CONROY: When you say 'prevalent', if by definition they have not got a lead-in previously, how do you determine if it is prevalent? They never had a lead-in. Are you saying, 'In this street Optus have done all overhead so we will do an overhead here'? Is that what you mean by prevalent?

Mr Ryan : That is right. Even if we go aerial we have to get a pathway from the pit to the bottom of the pole to then run up the pole and do a drop into the premise. We will take all that into account in trying to work out the difficulty and the cost associated with that.

CHAIR: What if the customer wanted it to go underground, even though the suburb is generally aerial?

Mr Morrow : We would probably work with them. The incremental cost may be something that they have to pay for. We would work with them to see what is possible. If we think we could do it and it does not cost any more and does not cause a big delay, of course we would be collaborative.

Senator McLUCAS: Are people given that option?

Mr Morrow : Typically no. The company has a right to be able to have access to the facilities to build this network out, that Senator Conroy is very familiar with. You were asking about the lead-in issue, Senator Conroy. I think it is important and I know you are seeking to understand. Let me break it out in a different way in a higher-level type of discussion. The HFC network that we know of today encompasses an area that is close to four million homes, if you drew a circle around it. Some of those homes have cable running down the streets, some of them do not. Some of the MDUs have no cable facility in, some of them have one or two coaxial running up, where they and Foxtel or Telstra paid for that individual circuit to go up. So there is an overlap of the Optus and Telstra HFC network. We have decided to use the Telstra network where they are exclusive and where there is overlap with Optus. We will use the Optus network where Optus is exclusive, where there is no Telstra.

Taking the Telstra area first: when we look at the lead-in, if there is a Telstra aerial feed going into some houses and not others, we will look to see if there is an Optus aerial lead-in there as well. Optus has been very collaborative with us in saying, 'Go ahead and use our lead-in.' We will just switch over at tap that is hanging near the pole and switch the Optus cable onto the Telstra cable, and that lead-in is done. That is a very quick, easy process.

If there is not an Optus lead-in and there is no Telstra lead-in, then it is aerial. Somebody comes out in a truck and runs the aerial lead-in, attaches it to the house, plugs it into the tap and it is done. In the case of it being buried—I am still in the Telstra area—and someone does not have a lead-in, we will likely look to see if there is an aerial application, as Pete said, but if not, we will go ahead and tunnel in in the same way that we have had to build lead-ins in the FTTP area. We know that there are cases where Telstra is underground and Optus is aerial, and Optus may have a lead-in going down to that particular home, but since we are not using the Optus network, as Pete said, we have to think, 'Can we get from the underground pit to that aerial point up the pole, and is it quicker, cheaper, easier and less disruptive to the consumer by doing that?'

So there is a mix of elements that can occur within any one area. The fourth one is the MDUs. If it is just a four-unit MDU, even though coaxial is running down the street but not tied in, it is probably economical to just drag the coaxial cable and run it up into each of those four units; it is done, closed off and it is a full, bona fide HFC network application.

Now let us say it is a 50-unit build in. Now it may not be economically viable to run 50 different coaxial cables up there. Maybe there we ask whether there is a micronode on an FTTN application that makes more sense. Now let us say it is a 200-unit build in. FTTN is probably not the right application. Certainly running 200 coaxial lead-ins in not going to be economically feasible, but Pete putting in an FTTB—fibre all the way into the basement feeding those 200. This is the issue where we would love to be able to say that we have identified every single household and exactly how they are going to be served, but we cannot. There are just too many variables, and until we get into that area we cannot see in. That is the reason that I say that HFC is going to move around. We have circled this with currently four million homes, but it will be fewer homes that will actually have a coax sticking into their house to serve for broadband.

Senator CONROY: Moving to the Telstra HFC area that we were just talking about, in your new memorandum of understanding, in its release to the market in December, Telstra described its role as:

Under the MoU Telstra and nbn will negotiate to finalise a contract covering the design, engineering, procurement and construction management of the NBN network in the HFC footprint covered by the existing Telstra HFC network. This contract is expected to be completed early in 2016. Today's announcement also includes an agreement with Telstra to undertake some earlier works to support the build of the NBN network in the HFC footprint while the contract is negotiated. This will include preparing Telstra NBN exchange locations and HFC planning and design work.

Is it correct that Telstra are now designing and building out in Telstra HFC areas?

Mr Morrow : No. First of all, we are in negotiations with Telstra. We do not have contracts signed yet, so we are limited in what we can say. The intent is to have them manage this for us, not physically do the work. Our contracts that we have, as Pete mentioned, with the MIMA agreements, will be the ones that are physically doing the work.

Mr Ryan : In the construction there will be our delivery partners operating under the nbn MIMA contracts.

Senator CONROY: So if it all goes the way the announcement says, they will be designing and building out the HFC? I appreciate that it is not yet there yet, but that is what the negotiations are around, isn't it? I am not try to catch you on anything, I am just looking for a factual explanation.

Mr Ryan : Yes, designing to NBN standards and business rules. They will be managing the construction. I think it is an important point.

Senator CONROY: I am keen for you to make sure that there is no misunderstanding. Telstra do not build anything in themselves. They outsource it to someone else.

Mr Ryan : The most important thing is that the success going forward as we scale the rollout is to be able to manage successfully the contention in the construction industry so we do not have competing interests either commercially or in terms of volumes of work. That is why it is important that nbn retains control of who gets to work where.

Senator CONROY: I totally agree. Telstra wanting to design a network is very different from how you would want to design a network.

Mr Ryan : The important point is that they will be designing the network to the nbn standards and business rules, particularly around technology mix et cetera.

Mr Morrow : Just as Kordia, Telstra and TCS are designing other parts of the network for us outside HFC as well.

Senator CONROY: Obviously this is in progress. Are you hoping that you can sign that contract soon?

Mr Morrow : Hopefully we are weeks away, but I will never let a time issue be traded off for value. There is an age-old art in negotiation. If you are under pressure to have something by a certain date, I have the advantage. We are not going to pass that advantage.

Senator CONROY: To confirm, you do not yet have your HFC construction contract in place for the Telstra HFC areas? You do not have anyone signed up? That is separate from the Telstra negotiation?

Mr Ryan : For the construction?

Senator CONROY: Yes.

Mr Ryan : That is correct. We have commenced the process—

Senator CONROY: I am just confused, because your MIMA contracts were for FTTP only, not HFC—that is right, isn't it?

Mr Ryan : That is correct.

Senator CONROY: So you do not have a construction partner on HFC?

Mr Ryan : For example, in the Redcliffe area that we talked about before in the launch, we have engaged Lend Lease—

Senator CONROY: Excellent! They have such a proud track record in NBN builds.

Mr Ryan : who are our construction partner on those early areas in the Redcliffe area.

Senator CONROY: God help you.

Mr Ryan : We have them going in those builds. But you are certainly right that, in terms of the scale component of the Telstra footprint using the MIMA contracts, we have issued an expression of interest and we will soon be moving to take that into the tender phase.

Senator CONROY: Nbn indicated in December that the cost of this build contract with Telstra—you have clarified it, but let me use that word for the moment—was included in the corporate plan:

These arrangements will have no impact on nbn's peak funding estimate.

Presumably the cost of this contract is part of the $8 billion to $15 billion blow-out between the strategic review and the corporate plan.

Mr Rue : The cost of this is included in the $49 billion peak funding that we talked about.

Senator CONROY: 49 to 56.

Mr Rue : It is included in the $49 billion.

Mr Morrow : 45 to—

Mr Rue : We indicated a range of 46 to 56, as you are aware, as you would expect the program of this complexity. The Telstra costs, as you say, are included in the $49 billion.

Senator CONROY: Given that Telstra are not doing the build contract anymore, as Mr Ryan has indicated—

Mr Rue : There is no movement from the $49 billion peak funding.

Senator CONROY: So the construction contract which is yet to be signed is forecast inside that number?

Mr Rue : Yes, it is.

Senator CONROY: The corporate plan was complete by June, wasn't it?

Mr Rue : It was issued in August. It was prepared over a nine-month period.

Senator CONROY: If the value of this contract is included in NBN's current peak funding estimate, then NBN has known it would sign this contract for some time. You put it in back in June.

Mr Morrow : There are always elements that come up that are more than what we had anticipated and others that come under. That is always going to be the case.

Senator CONROY: I appreciate that you will want to gild the lily in the other direction. I am just trying to factually ascertain that this is one that has not been signed nearly eight months later.

Mr Morrow : That is right. Because of good contingency planning, the budget that was set and the $49 billion peak funding that Mr Rue talked about, we feel fortunate that we took into consideration some things that we did not know and that just happens to fit right within the $49 billion peak funding. We are thrilled that there is no more cost than what we anticipated.

Senator CONROY: Has the ACCC raised any concerns with you about Telstra's involvement in this aspect of the build?

Mr Morrow : We have ongoing discussions with the ACCC. They are always very concerned and aware and want to ensure that Telstra has no competitive advantage to the other RSPs. We therefore keep the ACCC appraised and how that would actually work, to be sure that that is the case. Right now we have a degree of comfort that the ACCC has with this process.

Senator CONROY: This is not an issue that is directly about you, but are you familiar with the criticism that having Telstra involved in any way gives them a material advantage in terms of transitioning customers?

Mr Morrow : I am. I have had our RSP customers continue to express concern. I have not given Telstra an advantage.

Senator CONROY: Who has the construction contracts for Optus's HFC, if as you say you are definitely using it, even though it is a pile of rubbish?

Mr Ryan : Who does Optus use?

Senator CONROY: Who are you using to build?

Mr Ryan : We are using Lend Lease.

Senator CONROY: In the Optus footprint as well? Not just in your trial thing?

Mr Ryan : Ongoing?

Senator CONROY: Yes.

Mr Ryan : Beyond Lend Lease we have not yet locked in any further construction partners.

Senator CONROY: Explain to me: when you say that you are continuing to use the Optus, there has been strong criticism of the Optus network—and I have personal experience of it myself. My understanding was that their fibre connection into their nodes was of an old, old fibre rollout back in the nineties that perhaps did not meet the current classifications of standards for fibre that exist in 2015. Are you replacing that fibre?

Mr Ryan : I am not aware of any intention to replace their fibre.

Senator CONROY: Are you upgrading the fibre?

Mr Ryan : Firstly, I am certainly not aware of any intention to. Secondly, we are in the process of doing a lot of detailed designs, area by area, of the Optus network, which will identify any need for—

Senator CONROY: I am just trying to work out which part of this dog of a network you are planning on using. The boxes themselves need serious upgrades, the nodes—call them whatever you want to call them in a HFC world, but the nodes are rubbish. The fibre backhaul to it is rubbish and their lead-in is average. They told me themselves that the fibre could only deliver 70 meg into their boxes. You could possibly keep using that fibre, so I am trying to understand what piece of this network you think you will incorporate into your architecture.

Come on, a lot of people are going to be watching and laughing about this, but you are going to have to give me a serious answer about which parts of this thing that you have acquired you intend to incorporate.

Mr Morrow : We have been very close. Obviously, we are working with Optus; they are a good company and a good partner of ours. Their network is running—I am quite familiar with their network as well. For what we want to use it for, we will do a number of things to the Optus network.

Senator CONROY: I am trying to work out what upgrades you are going to do.

Mr Morrow : Starting with getting lead-ins to everybody's houses we will, of course, redesign the number of homes per node that exist on what—

Senator CONROY: How many do Optus use at the moment?

Mr Morrow : I believe they are in the thousand—

Mr Ryan : On average, I think it is more around 1,200 to 1,400.

Senator CONROY: And you are moving down to 800?

Mr Ryan : Over time. I thought it was in the 700 to 800 range. I think Dennis corrected me down to 600 to 700.

Senator CONROY: Six hundred to 700, yes.

Mr Morrow : As you know, the penetration rate of people using that network has a curve against it, so you do not need to do all of the capacity right up-front. You can do the nodes as you go and that is why, ultimately, you get—

Senator CONROY: So, how many extra nodes will you put in place for the Optus network? Compared to the Telstra network, how many extra nodes? Will there be twice as many nodes to make the Optus network serviceable by the standards that you are defining?

Mr Ryan : It will be more, I just do not have the number off the top of my head. I will have to come back to you with that.

Mr Morrow : I think it is fair to say that Telstra had fewer homes per node than the Optus network had. So on a per house basis, on average you are going to do more nodes on the Optus network than you would on Telstra. But because the Telstra network is bigger, on aggregate of course there are going to be more nodes on the Telstra network that will change.

Senator CONROY: In the US, where, admittedly, the cable companies are competing directly with fibre to the premises—and, Mr Morrow, you just mentioned that you have been on a whistlestop tour—what is your latest intelligence about the sort of breakdown where there is direct competition between the cable companies and the fibre-to-the prem companies?

Mr Morrow : I will not mention any names, to protect some of the data. But currently the bigger cable companies there have moved to support broadband data by putting 600 to 800 homes per node as a construct. And they also have a technology evolution plan that potentially can take that down to 60.

Senator CONROY: Sixty?

Mr Morrow : Right. That is through a remote-fi construct. It is a concept of pushing fibre further down to where it is still connected to a coaxial network—

Senator CONROY: Yes. It is just a node-splitting exercise to the end of the street, ultimately, if you want to do it that way.

Mr Morrow : I think this is their response—'You may not need fibre all the way up into the house, but we can push fibre down that expands that capacity to give you—'

Senator CONROY: What I am confused about, though, is why they think they need to drop for 60 per home to compete with fibre, when you are telling us that 600 per home can perfectly match the service of a fibre.

Mr Morrow : They have not taken a decision to say they are going to flip it their network over completely on that. We talked about evolution plans; how do you have an upgrade when you are on a coax network? Does it have a finite life?—that sort of thing. This is where we learned that there are some incredible things on HFC that are occurring. For example, recently Cable Labs came up with a new modulation scheme to where you can get 20 gigabits per second down and 20 gigabits per second up. Then there are other things—again this remote-fi concept where you are pushing fibre further down the stream—

Senator CONROY: And it is all a shared service?

Mr Morrow : Everything is a shared service, right? Only point to point is not shared. You and I have had some fun on this before—

Senator CONROY: No, we have had some serious conversations about it as well in the same room. So let's not pretend the same contention applies between HFC—unless you are going down to 40 or 60 per home.

Mr Morrow : Again, remember the frequency. We should get Dennis back on the line, because he has the nitty-gritty on this sort of stuff and he knows a lot about each of these technologies. The thing that sticks out for me in our discussions with him is that, even on fibre—as you know, we do a one-to-32 split—the current fibre today has a certain capacity of a megabit per second or a certain number of megabits or gigabits that can be sent over that feeder-fibre before it is distributed and shared among 33 hubs—

Senator CONROY: That is just because of the way it is configured today. That is not the limit to how it can be done. That is just the way it has been configured.

Mr Morrow : Indeed. And that is why I am saying that, even with HFC, the idea of where you are with six to 800 homes today is not the limit, because you can continue to do other things, such as this Cable Labs new modulation—it is an FTT full-duplex configuration—without pushing fibre further down the home that can give you 10 gigabits per second up and down. That is the beauty; that is why we do love HFC. We think that it has a high degree of worldwide R&D being invested. That is going to continue to evolve. Given the speeds and infrastructure that are already there, yes, we have to put more lead-ins in that currently are out there today. But it is cheaper and it is faster and it is going to give speeds that are phenomenal.

Senator CONROY: At 600 to 800 on a shared service?

Mr Morrow : Yes.

Senator CONROY: But international companies are looking to evolve to 60 homes?

Mr Morrow : As are we. In a part of the—

Senator CONROY: Okay, so tell me about what the costs of your evolution are going to be? You do not have a competitor. I can understand that they are going, 'Oh my God, we've got to node split and node split—'

Mr Morrow : That is a very valid point.

Senator CONROY: But they have a competitor; you do not.

Mr Morrow : That is a very valid point. Many of these carriers that we spoke to are taking a portion of their network and they are moving to gigabit and faster speeds only because of the marketing pressure not because they feel that the consumer is demanding it or is willing to pay for it. So that is a very important point as to why we feel these are adequate speed levels that we can serve today. Should and when these capacities be exceeded, then we will upgrade in many of the ways that we are learning from our US and European counterparts.

Again, if we go in and build this 600- or 800-homesĀ­-per-node architecture using DOCSIS 3.1, we can have up to a 1-gigbit-per-second service. That is absolutely fabulous. Now with FTDD, this full-duplex configuration that came out of Cable Labs, we can actually now take that up to 20 gigabits per second up and 20 gigabits per second down. This is phenomenal. It will require some retrofit. We have not costed that out. We have not priced that out, but we know that we have a straightforward upgrade path to be able to give people greater consumption, greater speeds and greater capacity if and when they need it. We presume that we will do that at a time when the company is actually earning its own cash and we can use our own money to pay for it rather than relying on money from investors or banks.

Senator CONROY: Telstra seems to indicate in its December press release that it will be responsible for the whole NBN rollout within its HFC footprint—not just the HFC. So I am making clear this is Telstra—

Mr Morrow : Again, we are in the middle of negotiations and discussions. I cannot comment on that. The next time we meet hopefully we will be able to give you more detail.

Senator CONROY: I can ask you to comment on a statement by Telstra. You might say, 'Well, that's not correct because we have not finalised that.' So: if any FTTP, FTTN or FTTB is built within Telstra's HFC footprint, will Telstra be responsible for that?

Mr Morrow : One of the options—which has not been decided and which we are still negotiating—is that in the area where Telstra has HFC—I think it is about 3½ million homes is the surrounding footprint—

Senator CONROY: That is just an awful lot of gravy for Telstra if they get the deal.

Mr Morrow : Again, it is gravy for us, because we get a lot of help. Let me explain. In the 3½ million homes there will be some cases where it is more than just HFC. It might be some FTTN; it might be some FTTB. Maybe there is even some fixed wireless in there. Again, we are not precluding anything at this point. One of the options is to look at: can we get a volume discount on the management fee of this to have them do that for us—still using our MIMA partners, as Pete said earlier, and that may in fact be better from a volume and a speed point of view, to be able to move down.

I think it is really important here—one of the key reasons I am personally so keen is to do this is Telstra, as you know, has 100 years of knowledge in building this network. They have some great people in that company. They know HFC better than anybody. They also know that, even in a copper situation, when we have to do the migration there are a lot of steps in the process that we have to go back to Telstra on to talk to them. But, if they are actually integrating those two efforts together, then things go quicker—in fact, things become cheaper to do. And that is precisely why we are excited about this opportunity. But we are not going to pay anything, so if Telstra is listening out there: you are not getting over on more money; we are going to do this in a very efficient sort of way.

Senator CONROY: I am just reading from their press release, and it says:

Telstra and NBN announce additional agreements—

21 December 2015—

Telstra and NBN have announced they have signed a Memorandum of Understanding (MoU) to negotiate a significant contract for Telstra to support the NBN network build in areas currently covered by Telstra’s HFC footprint as well as additional work for Telstra under NBN’s maintenance contracts.

You are now going to pay them to maintain the network that they are currently paying to maintain themselves?

Mr Morrow : Say that again?

Senator CONROY: It is their network currently, so they are maintaining it. They are incurring the costs. But now you are going to pay them to maintain it.

Mr Morrow : When we take over—according to the agreement that we have with them—an area, that network becomes our responsibility and up to us to maintain. There are fees that come back for services that are remain specific to Telstra, but it is our network responsibility. We are not going to hire the people directly to maintain that. We will subcontract that out. By subcontracting it back to Telstra, there are certain advantages because, as you know, a lot of the knowledge of the network is kind of in the brains of a lot of the great technicians that have been working decades on this network.

Senator CONROY: Just a left field one for a moment: I understand recently an NBN press release went out and incorporated within an NBN press release in a local area were comments from a politician. That is probably the first time I have seen that happen. Is that going to be an ongoing—

Mr Morrow : No, I will apologise for that. That should not have happened. Karina picked up on that. She took action within that group. All press releases are supposed to go through her personally. That one did not. She would have caught it. She would have removed it. The individual that did that—it was an innocent error—is very clear on our policy: that that is a no-no.

Senator CONROY: I appreciate that. It is reassuring for everyone to know. I think that is a very appropriate way to deal with it.

Back in December 2013, nbn co forecast that there would 2.61 million Australian homes connected to HFC by the end of this year. I just want you to summarise. The corporate plan indicates that you will only have 10,000 connected by 30 June this year, almost all of which are from a trial. That is correct? We have just had a discussion. It is not all the trial.

Mr Morrow : The majority will have been built and tried.

Senator CONROY: Okay. The Optus network needs significant investment. You have indicated that you are going through that, looking at how you can upgrade it.

Mr Ryan : We are, yes.

Senator CONROY: You do not have any 3.1 modems yet. They are still in the test lab.

Mr Morrow : Correct.

Senator CONROY: Your HFC commercial launch has been delayed from what was originally forecast—

Mr Morrow : No, the forecast was always—

Senator CONROY: in your product statement.

Mr Rue : From the corporate plan, it is right where we said it would be.

Senator CONROY: No, you can keep pointing to the corporate plan and I will keep pointing to the document which actually came out first. You have not signed design and construction contracts for HFC yet.

Mr Ryan : No, that is not entirely correct.

Senator CONROY: Design? You certainly do not have construction contracts; we have just been through that at length.

Mr Ryan : No, when we signed the MOU with Telstra prior to Christmas, we also gave them commercial cover to commence some designs, so they have started designs.

Senator CONROY: They started some designs in December?

Mr Ryan : Correct.

Senator CONROY: Okay.

Mr Rue : And we have been designing on the Optus network too.

Senator CONROY: Who is doing that? You are not letting Optus do that, are you?

Mr Rue : It is not being done by Optus, no.

Senator CONROY: Isn't their network the best?

Mr Rue : Sorry?

Senator CONROY: How come Telstra get to design theirs and Optus do not get to redesign Optus's?

Mr Morrow : That is somewhat confidential, but I can tell you Optus agrees with it.

Senator CONROY: I am sure they are happy to have nothing more to do with this dog. I really am confident of that. Given you are roughly 2.6 million behind where you had hoped to be in a few months, how are you going to get 2.35 million homes ready for service on the HFC in a little over two years from now, given what we have talked about?

Mr Morrow : I will commit that this team is going to drive and deliver on the top-level rollout target that is in the corporate plan. That has taken our 2.6 million today, almost doubling that as we go forward into FY17. Whether we do more FTTN or HFC or fixed wireless or new dev is really a function that I use as latitude. I am not worried about it. There is no commitment about any number of any one of the technologies—only a commitment about that top aggregate level.

Senator CONROY: No, no—

Mr Morrow : And I will continue to do that throughout the life of the build, because that is the way in which we are going to get this done—the fastest way possible.

Senator CONROY: I appreciate you do not want to be held to your own targets for HFC, because you know you are not going to meet them, and I appreciate that you will point to a top-line number and say, 'If I could include 200,000 satellite numbers in that, I would stick it in to cover for the fact that 200,000 HFC will not be there instead.' But I am holding you to account for what you have promised to do—

Mr Morrow : And that was rolling out. That was 2.6 million this year—

Senator CONROY: not the fact that you fungibly keep saying that the Australians in the HFC footprint will be done in two years and then you suddenly say, 'The Australians in the HFC footprint aren't going to be done, but we did someone else's instead.' I am going to hold you to your own promises and your own forecasts and your own time limits.

Mr Morrow : If you look at what—

Senator CONROY: But you can play the game of covering up the fact that you are failing to deliver your HFC rollout on time.

Mr Morrow : Everything we have published where we have said 'could' is subject to change. On the top-level number—2.6 million this year and 5.4 million next year—we are killing it in terms of delivering on that, and the team deserves a lot of credit for doing so. Australia is going to be a lot better off for our doing so. As far as whether there is more of one technology or less of another or one neighbourhood gets it ahead of schedule and another neighbourhood gets it behind schedule, there is no commitment in there—because that is the way in which this project, given its complexity of size, has to work.

Senator CONROY: I appreciate that is the way you can avoid being accountable. I can appreciate you do not want to be accountable—

Mr Morrow : It is not an issue of accountability.

Senator CONROY: for what you forecast to be done with the HFC. I know the internal nickname you have for the HFC project and it is not fit to describe on the public record: 'Operation cluster' something. I am fully aware of what you are calling it.

Mr Morrow : I have never heard of that.

Senator CONROY: I am fully aware of what it is referred to, inside the organisation. But I am not going to let you pretend that you are on target with your rollout when your HFC rollout is massively behind and there is no chance of reaching your internal and public target, originally, for HFC. You can say, 'We've reached it somewhere else.' You can say, 'I've got two tin cans and a piece of string and, therefore, that constitutes the broadband network,' but you promised to put HFC on for 2.35 million Australians in the next two years.

Mr Morrow : That is not correct.

Senator CONROY: Yes, it is.

Mr Morrow : That is not correct. There was no promise. There was never a promise. As I said, no-one has walked across every piece of property, in this country, to determine exactly what the right solution is to go in. That would be crazy to do, time consuming and it would slow the rollout even more. That is why we are making a commitment of 2.6 million this year, 5.4 million next year and this thing is going to be done by the year 2020. What neighbourhood gets it first and what neighbourhood gets its second is something we are going to move around to make sure that we can stay on that target. We will generate the demand—

Senator CONROY: I do not think talking about neighbourhoods, interchangeably, when you are not reaching any of the HFC in the time frame—and pretending that is the same as saying, 'We just decided to do that neighbourhood instead of that neighbourhood'—you have an entire rollout, an entire technology, that is massively behind. You cannot keep trying to pretend it is not.

Mr Morrow : Let me tell you, right now, to make it perfectly clear and public: some of the technologies are going to come sooner; some of the technologies are going to come later. But the rollout across the nation will stay on track. That is a prerogative that we need, that we will use within, and anybody would do it, given the nature of this project, so there is never a commitment on the subtechnology underneath the plan or the neighbourhood that is being cast. That is why we said—

Senator CONROY: You can try and say that.

Mr Morrow : in the construction rollout programs this will move.

Senator CONROY: There are public documents that dispute what you are saying. I am going to keep pointing to them, even though you do not want to believe they exist.

Mr Morrow : We have explained them to you. The alleged public documents that you talk about are one fraction of the overall plan. Therefore, you cannot draw a conclusion from that.

Senator CONROY: I am talking about your HFC network not even having a construction partner and you saying that you are going to do 2.35 million in the next two years—and you do not even have a construction partner.

Mr Morrow : I am going to say we are going to do 2.6 million homes, this year, faster than anybody has ever done it before, 5.4 million by the end of FY 17—again, faster than anybody has ever done it before—and, yes, some people will get it sooner than later. That is just the nature of the build that is going to go across.

Mr Rue : If you read the corporate plan, carefully, that is what we said in the corporate plan.

Mr Morrow : We were very clear, never promising that subelement behind this—again, as I said, we circle an area and say it is going to be a high level, that four million homes are in, the HFC footprint area. I can assure you, right now, there will not be four million homes having HFC—

Senator CONROY: I have your corporate plan right in front of me. On page 60 it has—you can look it up there—HFC 10,000 FY 16, 875,000 FY 17 and 2.3 million FY 18. They are your numbers. You have published them. All I am saying to you is: you do not even have a construction partner signed yet and you are pretending you are going to meet those numbers.

Mr Rue : If you read page 38 and 39 of the corporate plan, the same document, you will see—

Senator CONROY: I am just reading from the numbers in your table.

Mr Rue : And I am reading from the same document a few pages earlier. We made it clear that they were the numbers, at that point in time, and they could move around. We have always been clear about that.

Senator CONROY: I appreciate you want to hide the fact that your HFC network is a disaster.

Mr Rue : We are not hiding anything. We put it on a piece of paper. That is not hiding anything.

Senator CONROY: I am, simply, holding you to your own corporate plan, not something from years ago, something you released recently.

Mr Morrow : Great! That is what we want to be held to. That is exactly what we are holding to and what we will deliver.

Mr Rue : I am reading from the same document.

Mr Morrow : Can I also point out—

Senator CONROY: It is 2.3 million homes by 2018—and you do not have a construction partner. And it is March 2016. You barely have any designs done.

Mr Morrow : Can I say, this is my prerogative. Those are not board targets. Those are not government targets. Those are, internally, the general direction of what we thought we were going to do. I will tell you, right now, I am not bothered by getting the HFC retrofit on this, because those people who are in the HFC area have access to a broadband capability today. Those people in the FTTN areas either have very weak ADSL or many of them do not have anything at all.

The idea, which I think you even started when you first started this project—you said you want to look at the underserved. These are areas that are underserved. So that is where we are putting the muscle to say, 'Let's get that done first.' Pete's, actually, going to overdeliver by hundreds of thousands on FTTN, people who have never had broadband or have inadequate broadband to do this. This is about doing what is right by Australia and meeting our commitment of the 2.6 million this year and 5.4 million next year. It is a good plan and we will continue to have—

Senator CONROY: That little speech would be fine if there were not all these Australians who live in the HFC footprint and do not have a lead-in—1.9 million of them.

Mr Morrow : They can order one today, if they want to.

Senator CONROY: It is very good of you to ask them to go and take up a service from Telstra or Optus. It is very kind of you to offer them that opportunity.

Mr Morrow : If there are two people, one who has the opportunity to get a 70-megabit service from Telstra—

Senator CONROY: Let us be clear. Then, there are all of those MDUs that Telstra and Optus will not serve. They are people who fit into your previous category. It is a great speech except the facts on the ground do not support you.

Mr Morrow : Thank you. I love that.

Senator CONROY: I can understand you cannot meet this target. You know you cannot meet this target. And now you want a wave a magic wand and pretend you have some other target.

Mr Morrow : I do not know what your spin is on this but—

Senator CONROY: We are going to have to break because we have to go to question time. Apologies.

Mr Morrow : Can I comment on this, Chair?

CHAIR: Yes.

Mr Morrow : Thank you. You mentioned the MDUs. Thank you for doing that. That does not count as the HFC; that is what we are doing ahead of time. I am not worried about putting HFC in those areas that would be in that corporate plan number, that you are talking about, that we said we would move. That is where we are going to use FTTB. That is where we are going to use FTTN. Those MDUs will get it faster.

Senator CONROY: You do not have a design partner. You do not have a design. You do not have a construction partner.

Mr Morrow : We do for FTTB and FTTN. I would, finally, close with the fact that, again—look at the numbers. We are delivering this rollout faster than ever before—over 40,000 a week—

Senator CONROY: That is 70 within the HFC footprint.

Mr Morrow : That is 35 times faster than what it was in the year 2015.

Senator CONROY: Congratulations.

Mr Morrow : Thank you, Senator, for acknowledging that.

Senator CONROY: You have ramped it up from the early stages. It is good you put the last brick on top of the Empire State Building and claimed success. I love it!

CHAIR: With that, we will now break. Thank you very much. We will have question time and then be back.

Proceedings suspended from 13:42 to 15:18

CHAIR: Welcome back, Mr Morrow and Mr Ryan. I hope you enjoyed question time and had a lovely lunch. Senator Johnston has some questions.

Senator JOHNSTON: Unfortunately, we had a lot of divisions before lunch and I am not sure whether we went on before lunch. I was in the chamber most of the time. It was put to you that the board of nbn co is ignoring what is going on in New Zealand and ignoring the 'skinny fibre' developments that we heard about from Corning this morning. Let's get that clear; I do not think we are ignoring anything at nbn co, are we?

Mr Morrow : That is correct. The board meets on a regular basis—in fact, usually over 10 times a year. The chairman of the board insists on coming in for all of the latest updates and is constantly pressing management to come up with new ideas to be able to roll out the NBN faster and cheaper and avoid any sort of reliability issues that may occur, which is something that is very important to the board.

Senator JOHNSTON: The three principal focuses that are determining the analysis of any new technology that comes across the board's circumspection are cost, schedule and service to the customer?

Mr Morrow : That is right—and that service to the customer would include: are we providing an ample level of quality and service that meets their needs?

Senator JOHNSTON: It was also put to you that fibre to the node is third-rate-quality technology. I do not know with this expression 'third rate' comes from, but what do you say about that?

Mr Morrow : I think all of the technology experts around the world would agree that this is some of the most sophisticated technology that is being used—

Senator CONROY: Ten years ago.

Mr Morrow : If you look at the advancements by the people that are the innovators in this space, it is the result of a lot of recent R&D development and advancement in technology. To be able to get these sorts of speeds out of these electronics over kilometre-loop lengths is just an engineering marvel in many respects, and that is the technology to which we are deploying. Again, if you look at our performance—just evidenced by the facts—with an average of 83 megabits per second delivered on the downlink of over 30,000 circuits that are currently in use, it is evidence that this service can provide a speed that meets users' needs.

Senator JOHNSTON: Let's talk about—

Senator CONROY: today.

Senator JOHNSTON: Sorry?

Senator CONROY: Today.

Senator JOHNSTON: Let's talk about your projected targets. What targets have you set out more recently, and how are you going, as a benchmark, in terms of meeting those targets?

Mr Morrow : The board has pushed management quite hard and laid out a target, first of all, that we should have 2.6 million homes that are available to order a service this year. That 2.6 million jumps up to 5.4 million in the next financial year. Equally so, they are looking for close to one million active end users on the network by the end of this year and close to double that for the next financial year.

Senator JOHNSTON: When did the board set those targets, Mr Morrow?

Mr Morrow : Those targets were set about a year ago today. They aggressively pushed us to say that this is what the country needs; this is what we think a business is capable of—and, hence, our initiation into action.

Senator JOHNSTON: Can you tell me where you had been prior to that in terms of what the rollout rate was compared to the targets that you have set?

Mr Morrow : As I mentioned, with us producing over 35,000 new homes every week, that is 35 times faster than where we were in the year 2013.

Senator JOHNSTON: So we were doing a thousand homes a week?

Mr Morrow : That is correct. We had ratcheted that up to about 3,000 or 4,000 and hit a bit of a plateau. The very fact that, as I mentioned, over the last couple of weeks, hitting 40,000—there is a great deal of pride for the employees to have seen that they have increased that by 10 times.

Senator JOHNSTON: That is a huge difference—1,000 as opposed to 35,000.

Senator CONROY: Oh, my goodness! A ramp-up was achieved!

Senator JOHNSTON: What has been the secret to achieving that?

Mr Morrow : The secret to achieving this is, first of all, organising everybody that is involved with NBN in a very collegial sort of way. These are our RSPs, our own employees, each department within the company, our delivery partners, equipment suppliers—even consultants that need to help us think through what is the most innovative approach. By having everybody work together as one team we are able to be more efficient in our process. The second bit is clearly around some of the technology. As I mentioned in my opening statement, the idea of either HFC or FTTN already being built really eliminates a large portion of the work that is necessary—and, hence, we can do it faster. Those things combined allow us to be 10 times again than where we were just over a couple of years ago.

Senator JOHNSTON: Our 2.6 million figure—

Mr Morrow : It is 2.6 million by 30 June of this year.

Senator JOHNSTON: on your 35,000 per week, is clearly achievable in practical, transparent terms?

Mr Morrow : That is correct. In fact, we would only need to do 23,000 a week to hit that target. So you can see why we are so confident.

Senator JOHNSTON: So all of this talk about you being behind schedule and the media reports that are quite negative are completely superfluous?

Mr Morrow : That is absolutely correct. Delivering broadband to the country has never gone faster. We are exactly on track. In fact, in many cases we are ahead in almost every metric that a business looks at. When you look down into the detail, some things are going better than planned and some things are a little off plan, but that is what we account for. We anticipate that, and when you look in the aggregate as to why: so many employees can stand up proud and feel good about the work they are doing.

Senator JOHNSTON: How are you getting along with the RSPs and the marketing to end users of the product? What is the current state of play? Do we have the ombudsman on our back?

Mr Morrow : Not at all. In fact, I have not had a single call from the ombudsman.

Senator JOHNSTON: The telecommunications ombudsman?

Mr Morrow : That is correct—the TIO. Clearly, they track the complaints. In their last report they even acknowledged, on a percentage basis, that nbn co's percentage is coming down dramatically. This is good news. I think our RSP's are a lot happier. We do a satisfaction survey with them. We have had a pulse survey come back recently that has never been higher—a number that is well above our target today.

Senator JOHNSTON: So you actually go to your RSPs and you ask them about—notwithstanding the commercial relationship you have with them—their satisfaction with the service and the infrastructure you are providing?

Mr Morrow : That is correct. It is a third party, independent group that goes to ask the question to make sure it is not a mate issue to get a biased answer. That result has come in higher than where we had thought and higher than even the target that the board gave us. And they tell us that they appreciate the way in which we operate together. It is far different to the way it was in the past. Every quarter we do a major IT release. Historically, that has always caused major consternation for them, but we work with them more closely to make sure that if there is any impact it is small and it does not impact their business nor their reputation with the end user.

Senator JOHNSTON: The main focus of this committee has been on the technology, and the inference is that nbn co is applying the wrong technology. As a person who is not immersed in it like the former minister is—and I pay due respect and credit to his knowledge in this area—it strikes me that there are a lot of competing academic dispositions as to what technology is going to serve the country in the long term. I would like you to tell me what you think NBN is looking for in order to transition across to better technology. What are the indicia and the boxes that must be ticked for us to change tack and go to fibre to the distribution point or to use some of the technology that Corning has and that you have trialled? What are the threshold issues that you will look at in the future to say, 'Yes, this is going to be what we are going to do,' and why.

Mr Morrow : It starts with us looking at the current and future demand in terms of how much data consumption and/or data pushing into the network we will require. When we look over the immediate and near-term period of time, we feel that we have many technology options. We then look at what is the physical medium which that can be delivered over. Let us take fibre. It is very popular because it is known to have high-capacity elements behind it and very good characteristics in the ground, and all of our technologies use a high degree of fibre. Whether it is fibre to the node, fibre to the premises or fixed wireless, we push that as close as we can out to a point where we minimise the non-fibre portion of the network. In the case of FTTN, for example, it is typically about the last kilometre that is not riding over copper. Now we say, 'All right, is fibre needed for the current and near-term demand?' and the answer is no. But, will it be needed in the future?

We are not Nostradamus, so we do not try to get into too much of a prediction, but there are lots of indications. When you look at virtual reality, 4K and 8K television and all of these other things that may be coming down the pipe, if people are willing to pay for it then it very well could actually increase beyond the capacity of that last kilometre of copper technology. That is why we have Dennis Steiger, whom you met earlier, and his team. I have a very clear remit for him: find ways to increase capacity, lower the cost of the build and shorten the time of the build. Those are three very distinct objectives that his team has. Through that effort and drive and by working with our suppliers and vendors—like Corning, the company you saw earlier this morning—we have been able to come up with what we call skinny fibre. It effectively eliminates the cabinet on the street and pushes that smaller diameter cable to easier get through those ducts that we have out there. That helps us in terms of an upgrade path. So already the team thinks, 'If we reach a point where copper is exhausted with its capacity, can we take the fibre that goes into the node and just tap into it and continue to push that fibre closer down the street?' That is why we are excited about this; we think it does offer us the upgrade path.

Senator CONROY: Stop pretending about the architecture you have trialled—and this is something that CommsDay, you would be aware, have tried to pretend. The trials in Karingal and Ballarat were 100 per cent fibre-to-the-premises trails—that is correct, isn't it?

Mr Morrow : It is, yes.

Senator CONROY: No ifs, no buts.

Mr Morrow : Senator, yes. But the skinny fibre portion is in that local distribution—that local network portion. That is from the node to the customer house.

Senator CONROY: Do you need a node to do the skinny fibre?

Mr Morrow : Do you need a node to do the skinny fibre? No, but it does not touch the fibre that is before. So on an FTTP—

Senator CONROY: It is a completely separate architecture?

Mr Morrow : Skinny fibre has nothing to do with the lead-in. Skinny fibre has nothing to do with the distribution—

Senator CONROY: And nothing to do with the node.

Mr Morrow : It eliminates the node.

Senator CONROY: It eradicates a failing technology.

Mr Morrow : It is not a failing technology. As the senator asked and as I answered, it is actually one of the most sophisticated technologies being used—

Senator CONROY: Which everybody in the world but you is dumping.

Mr Morrow : Everybody in the world is doing exactly what the senator had asked me and that I answered. That is, 'What is the upgrade path should consumer demand or market pressures require it to go beyond the capacity of copper?' This is just a fundamental issue. You cannot deny 83 megabits per second on a downlink when 88 per cent of them only choose 25 megabits. There is something to be said for that as far as today's needs. You yourself, Senator Conroy, said, 'Yes, for today that is fine.' So if that is okay for today, how long do we have before we need more? Will that copper technology evolve and give us more, or will it cap out and will we actually have to go to skinny fibre and fibre to the distribution point as the next step? We think about those things. We are geared and we are ready to do that. We think in terms of the planning, as this company will—

Senator CONROY: The board rejected it.

Mr Morrow : I am sorry?

Senator CONROY: The board rejected you.

Mr Morrow : The board said, 'Not yet.'

Senator CONROY: No, they rejected you.

Mr Morrow : There are issues with the fibre to the distribution point and skinny fibre. It will still take us another year before we have a completely productised and ready to go. So if we said, 'No-one gets fibre to the node; we're going to wait for fibre to the distribution point' there are a lot of us that would be upset to have to wait a little bit longer. Again, that may not be a policy decision. It is not our call. The governments want to talk about and decide if it is worth it for our nation to do that. That is your business; not ours. Until that remit changes or until we can get that fibre cheaper and faster into the ground, we are going with fibre to the node. But we are going to do—like I said—probably a couple of hundred thousand of these skinny fibre and distribution point architects.

We look at also how we can upgrade the coaxial networks on HFC, and it is almost a very similar path of pushing fibre closer down to the street. You upgrade it when you need it and, therefore, you pay for it when you need it. There is something we call regret capital—and I know the good Senator Conroy will raise this—

Senator CONROY: It will waste millions.

Mr Morrow : Would you have needed to pay for that money on the node? If you look at the forecasts that some of the experts like Cisco have on this, we will be able to actually pay for that node and get broadband quicker to everybody else before it reaches that point where we need to push fibre down the road. If someone thinks that they can stimulate the demand and the willingness to pay then it may be a wiser option to do something other than fibre to the node. Again, I think that is a policy issue; not an issue for us.

Senator JOHNSTON: This strikes me as the classic commercial approach to most utilities be it water or electricity—they work out what is the demand, what is the future demand and they build the infrastructure accordingly.

Mr Morrow : That is right. And knowing that the demand will continue to increase, because we do not want to put our head in the sand here, we think about the upgrade path and what it is. I can tell you there is a lot of effort that we spend as executives saying: 'All right, for example, what is our path to a gigabit per second on everything? What do we need to do should the nation's demand get there to require that? And how fast can we get there?'

Senator CONROY: Can we get a node to go to a gig, to 10 gig?

Mr Morrow : Not in its current capacity.

Senator CONROY: No, you bypass it completely. You build a new architecture called skinny fibre and you bypass your nodes. You will strand your own nodes on your own argument.

Mr Morrow : I know you are familiar with this. I am always careful about predicting what technology could do. Who would have thought the mobile business would be where it is? Who would have thought you would be able to pull 10, 20, 30 megabits per second off a tower? If you think about the DSL evolution—

Senator CONROY: Actually technologists think that.

Mr Morrow : Exactly. Therefore it may very well be that that cabinet node with some electronic replacements, even with a kilometre of copper, can get you up to that level so we have to be a bit careful of that.

Senator CONROY: Has anyone got that in the labs? You have been overseas to all the top companies. Has anybody got anything in their labs that says to you that they can do that? Because you actually said the opposite earlier when you said that they are looking at DP possibly.

Mr Morrow : In fact they are looking at DP.

Senator CONROY: Which has got nothing to do with a node, nothing; it bypasses.

Mr Morrow : Maybe it is semantics that we are talking here.

Senator CONROY: What is a node? It is a large cabinet in a street that the distribution point bypasses. You will strand your own nodes with DP.

Mr Morrow : I will give my personal opinion. I think the reality is that if the demand hits 10-fold of what it is today then we are going to have to come up with an evolved architecture. Therefore I think Senator Conroy is right that that node is going to change shape dramatically—

Senator CONROY: It is going to vanish.

Mr Morrow : but we are geared for that. The question is: is that going to happen over the next four or five years? Should we delay things or should we go ahead and get it in now, earn a bit of money from that? Is it the theory that we will pay for it ourselves when we go rather than the banks or investors who have to put money into this? That is the principal debate. I will say, being very fair and pragmatic here, if that demand comes earlier than that then regret capital is real and we will have to spend money to be able to upgrade that sooner. Being very fair to everybody, yes, that could happen.

Senator JOHNSTON: What are you doing to analyse the future demand?

Mr Morrow : We collaborate with many of our peers around the globe. There are many other companies that invest a great deal of research and time into this, and we have spoken to those experts as well. We know that data consumption has grown dramatically over the past and will continue to grow dramatically into the future. We will be happy to provide what those curves might look like.

Senator JOHNSTON: I would be really pleased if you could provide us your analysis of the five-year out look at demand—

Senator CONROY: Five years? Building infrastructure for five years?

Senator JOHNSTON: because my next question, notwithstanding the cynicism on the other end of the table, is: is anything you are doing today a roadblock—

Senator CONROY: It is fibre to the node. If you are being really honest, you know.

Senator JOHNSTON: or a complete negative to future upgrade to accommodate a sharp rise in future demand?

Mr Morrow : No, that does not stop us upgrading capacity under the network. Think of it this way: we build fibre to 90 per cent of the circuit. We stop there. The last kilometre is copper. If that copper no longer can suffice and meet the needs of the consumer who is willing to pay for the added bandwidth then we would have to go back and retrofit and put fibre further down the street but you build from that point out.

It depends on when that requirement is made as to whether or not this is the right strategy. If you think just about our business model for a moment, if the cost of that node can be recovered over the period of time before you have to make further investment then that next set of investment has its own economic merits as to whether or not the consumer will be paying more money to offer the return for that further investment.

Senator JOHNSTON: So it is an economic commercial analysis based upon the demand?

Mr Morrow : That is correct. Then there are bigger issues that look at the ecosystem. I am a big proponent. I think that, if we can give everybody broadband, which I believe was the original concept that Senator Conroy was very much a part of before, we are going to change everything about the nation. You are going to have demand that now is over 23 million people and 12 million homes and businesses. That local demand will be met with a digital supply. What do I mean by 'digital supply'? Here is where entrepreneurs, small businesses and everybody can start to flourish—the educational side of it that is sent out to each of us, the health and welfare of how to live a healthier, happier and stronger life is suddenly pushed onto the internet—and then you get this beautiful cycle of evolution in the ecosystem.

Senator CONROY: Beautiful cycle? Five dropouts a day.

Mr Morrow : You disagree with that?

Senator CONROY: Five dropouts a day—that is not even a fault in the FTTN world.

Mr Morrow : You get the benefit behind that concept. The idea of getting it as quickly as possible to everybody is really important. Again, if somebody else made the decision: 'NBN executives, sorry, we are going to wait on that because we are going to build something else. You don't have to worry about the second stage or rebuild into the future,' that would be a different call and we would be happy to execute that if that were the direction of the government. But the faster and cheaper to generate this demand quicker is exactly what we are doing and why I said we are on track and on budget and accelerating faster than ever before.

Senator JOHNSTON: Thank you, Mr Morrow. I am very happy with those answers.

Senator URQUHART: Good afternoon, Mr Morrow, Mr Rue and Mr Ryan.

Mr Morrow : Hello.

Senator URQUHART: Mr Morrow, last week I attended a forum in Queenstown on the west coast of Tasmania. You are aware of this because I have raised this at estimates a number of times. The community was removed from the fixed-line rollout about midway through last year without warning. Labor's shadow communications minister, Jason Clare, also attended that forum with me and said it was the biggest NBN forum that he had actually been to around the country, which was not surprising given the amount of anger that is in that community. I want to follow up with a number of the questions posed at that forum. I would like to put them to you today. Hopefully, you are in a position to be able to provide answers so I can go back to the people on the west coast and let them know. I know some will be watching today. Has there been any consideration of the possibility of developing a partnership with TasNetworks so nbn could use the state-owned fibre connection that is already going into the west coast?

Mr Morrow : I believe we have had discussions with them.

Mr Ryan : We have. I am not aware of those coming to any conclusion at the moment.

Senator URQUHART: How long ago were those discussions?

Mr Ryan : I would have to come back to you.

Mr Morrow : I recall at least six months ago, maybe even longer, Mr Adcock informing me of discussions where they were trying to find any possible solution to get the two fibre paths into that area to where they do not need to rely on the satellite services.

Senator URQUHART: But I am talking about the existing fibre, the state-owned connection that is there. Was there discussion around that?

Mr Morrow : There is one fibre path.

Senator URQUHART: Yes, that is right.

Mr Morrow : As you know, Senator—I know you have been very close to this and representing your constituents very well—there is only one fibre path in that area and there is a great deal of distance to be able to get from the—

Senator URQUHART: Yes, I am aware of all of that. I guess the question was around if there has been any consideration of developing a partnership with TasNetworks so that fibre could be used.

Mr Morrow : Indeed, yes, Senator.

Senator URQUHART: So there has been, but obviously—

Mr Morrow : But that is only one path in and—

Senator URQUHART: I understand that.

Mr Morrow : we need a second one. If we had a second one, we would be striking a deal with them straight away and we would be bringing a different terrestrial—

Senator URQUHART: So that one would be suitable if there were a redundancy—

Mr Ryan : If I can just help there, Bill.

Mr Morrow : Yes, please.

Mr Ryan : I was actually talking to Senator Brett Whiteley about this last night. My understanding is that, in regard to the arrangements they have in place in terms of restoration of the existing TasNetworks link in the event of some sort of disruption to service, their restoration service level agreements are outside what we, nbn co, agree in our wholesale broadband agreements with our RSPs. Therefore, the resilience of that existing TasNetworks link is not, at the moment, fit for purpose to meet our obligations. That is something that we need to continue to investigate.

Senator URQUHART: Are there any other examples of nbn co partnering with utilities to use existing infrastructure?

Mr Ryan : Not that I am immediately aware of, but I would rather check that than be definitive.

Senator URQUHART: Mr Morrow, are you aware of that? You are the CEO. You should surely know whether there have been other utilities around the country with which nbn co has partnered.

Mr Morrow : With the use of their fibre, do you mean? We do not care who it is and we do not need to build it ourselves—

Senator URQUHART: No. Are there any other examples of nbn co partnering with utilities?

Mr Morrow : We would need to check. If there are, it is a small number. Outside of Tasmania, it would have to be quite a small number. As you would imagine, it is Telstra, Optus and Nextgen and those kinds of companies that we buy and manage services from using their fibre with these deals to be able to transport the data around.

Senator URQUHART: You will take that on notice. When can you provide me with a response on that? Can you do it before you finish?

Mr Morrow : Hopefully, before I leave.

Senator URQUHART: Excellent, thank you. One of the strongest themes—and I know I have raised this issue here before—was the issue of the economic development of that region. People on the west coast want to know how the west coast can actually remain competitive and attract technology based businesses into that area. But without high quality infrastructure in place, there is just not the opportunity to do that. Has nbn co done any work on the economic impacts of differing technologies in regional communities?

Mr Morrow : Not in the sense of broader ecosystems. We looked strictly at the cost per premise.

Senator URQUHART: It is just a cost. It is not about what the opportunities might be for a region.

Mr Morrow : Stephen is very adamant about the revenue element behind that.

Mr Rue : We will certainly look at revenue implications if there are business opportunities. But, no, our task in technology selection is how quickly we can do it and at how cheap a cost.

Senator URQUHART: It is not about what the benefit to the region might be in the longer term. You do not look at that? You do not care about that?

Mr Morrow : We do not look at the social elements of it, no.

Mr Rue : That is not in our remit.

Senator URQUHART: I am sure they will be interested to know that. There was an article in The Australian on 3 February that put the cost of satellite installation at $7,900 per site. Is that reporting accurate?

Mr Rue : According to the corporate plan, yes.

Senator URQUHART: That is accurate. What about the cost of delivering a fibre spur to the west coast. I know that in previous estimates you have told me that that is about $20 million, but last Tuesday night the council representatives said it was a number of figures. They had varying figures from $10 million to $20 million and other figures. Can you confirm the actual figure to get that spur into the west coast?

Mr Ryan : Let me come back to you specifically on that number. From what I understand, the $20 million represents the delivery of a fixed line solution to a number of those towns in that area, inclusive of the cost of the building out of the spur or fibre out to those towns.

Senator URQUHART: So it is $20 million. That is the correct figure.

Mr Ryan : Yes.

Senator URQUHART: Given that the west coast currently has an economic output of $372 million each year, why did nbn co determine that the fibre spur was too expensive? Is it just the cost, as Mr Rue said? Do you just look at what the cost is? It does not matter what that community puts back into a state or region; it is just purely on what the cost is to nbn co.

Mr Morrow : That is correct. We look at what we can expect for us from the revenue inflows versus the cost to build that out. It is amortised over time and then we look at the cheapest, fastest way to be able to get broadband that has at least 25 megabits per second. That is the criterion that we use. We do not take into consideration—

Senator URQUHART: So you did not do any modelling on the potential economic impacts of that region proceeding with satellites? You did not look at that? You just made the decision based on what you were prepared to spend?

Mr Rue : That is not an issue for the company; that goes to a government policy issue. It is not something that we are tasked to do.

Senator URQUHART: So you do not take that into account. It is the responsibility of the government to do that?

Mr Rue : Correct.

Senator URQUHART: So one would assume the government did not do that, given that the decision has been to put satellite into that area. Mr Morrow, you are nodding?

Mr Morrow : We have this Technology Choice Program—

Senator URQUHART: They do not have a technology choice down there, Mr Morrow. All they have got is the choice that you are giving them, which is satellite. That is the only choice they are getting.

Mr Morrow : What I am offering is: actually there is a way for them, if they are willing to pay for it, to get whichever technology they prefer.

Senator CONROY: Have you got any customers yet who have taken up—

Mr Morrow : Yes, we have four or five that are currently in the build process for it.

Senator CONROY: Four or five have said, 'Build me from the node, fibre to my home.'

Mr Morrow : 'Pull fibre all the way up into my home.' Yes.

Senator URQUHART: But they are not on the west coast of Tasmania, I can assure you of that, Senator Conroy.

Senator CONROY: They have much longer to pull, I am sure.

Mr Morrow : Senator, I am quite sensitive to areas—I grew up in quite a poor area that I hoped to see developed and it has diminished dramatically and I would love to see it recouped on. I try to do charitable things to be able to help that, so I share the empathy that you have with this region. But for nbn, as a business to do this—

Senator URQUHART: You could have shared a lot more if you had been at the forum the other night, Mr Morrow, with the people of Queenstown.

Mr Morrow : We did have representatives there, Senator. We made sure we did. And I stayed in touch with the individual who was there and spoke to him after as well.

Senator CONROY: You would love to live along the coast; will you move down there?

Mr Morrow : Maybe.

Senator CONROY: Without the NBN?

Mr Morrow : Twenty-five megabits per second—that is pretty darn good.

Senator CONROY: You could move onto the satellite down there—

Mr Morrow : The idea of us having to make sure that we are spending the taxpayer's money wisely and offering it—

Senator URQUHART: So it is a decision you do not make. It is left up to government to make a decision as to what the economic benefits of a region might be. You are just told, 'This is the amount you are going to get,' and that is all you can do.

Mr Morrow : That is correct. And if that region felt that it was worth the $20 million to make that investment to help that region, we would work with them on getting the fibre built, and they would of course pay for that.

Senator URQUHART: Are there any other options besides a duplicate line that could provide redundancy backup?

Mr Ryan : One of the conversations I had with Senator Whiteley last night—

Senator URQUHART: It is actually Brett Whiteley. He is not a senator.

Mr Ryan : My ignorance, I am sorry.

Senator URQUHART: He is also not an expert on NBN, I might add. But anyway, that is fine.

Senator JOHNSTON: He does not have any fans in the room, by the way.

Senator URQUHART: He did not have any fans—

Senator JOHNSTON: He is a good bloke.

Senator URQUHART: He had not one fan in Queenstown. Oh, hang on—he had staff with him.

Mr Ryan : It is not immediately obvious to me how there is not an alternative, but it is something we will continue to look at. Right now we are not aware of any—

Senator URQUHART: So you did not look at that before you made the choice to just give—

Mr Ryan : We looked at all—

Senator URQUHART: So if you looked at that, then what other options are there besides a duplicate line that could provide a redundancy backup? Have you looked at that?

Mr Ryan : Right now we are not aware of any other technologies—

Senator URQUHART: So you have not looked at that?

Mr Morrow : It is always getting the physical medium back to another area.

Senator URQUHART: It is not a hard question, Mr Morrow. It is—

Mr Morrow : And we are answering it.

Senator URQUHART: did you look at a redundancy—other options that might provide that duplicate line?

Mr Morrow : It is only an issue of redundancy, it is only an issue of fibre and it is where that fibre path goes. Is it a submarine cable that goes along the coast? Is it something that is ploughed back through the ductwork that exists today, or even trenching new back. Of course, that is what we looked at, that is the cost estimate that was factored in. We would look at the cheapest way to be able to provide this community with that sort of service.

Senator URQUHART: Has nbn co been asked by the government to consider any other options, such as microwave or other infrastructure for the west coast?

Mr Morrow : The government—do you mean as in Malcolm Turnbull?

Senator URQUHART: Yes, they are the government.

Mr Morrow : I did not know if you were talking local government or federal.

Senator URQUHART: Federal.

Mr Morrow : I am not aware of anything.

Senator URQUHART: At the forum last week the local member, Brett Whiteley, agreed to organise a meeting between West Coast Council, TasNetworks, nbn co and Telstra. Have you been contacted by Mr Whiteley to progress this meeting?

Mr Morrow : We have.

Senator URQUHART: Can you tell me when that might be happening?

Mr Morrow : It has not been decided yet.

Senator URQUHART: You told me last year that you would like to go to the West Coast to meet with community leaders and stakeholders, but that did not happen. If a meeting were organised, would you commit to a attend personally on behalf of nbn co?

Mr Morrow : If my calendar aligns with it, yes.

Senator URQUHART: What if they were to move stuff around to align with your calendar?

Mr Morrow : Yes.

Senator URQUHART: They are very flexible down there with dates, I can assure you. So is the answer yes?

Mr Morrow : Yes, I am happy to make a commitment to go down and talk to the public, to talk to local government officials. I am happy to do so, but we have to find a date that works.

Senator URQUHART: I understand that that trials of the satellite technology are currently being offered on the West Coast. Is that right?

Mr Morrow : I think there are trials taking place now in over 85 per cent of the beams across the satellite.

Senator URQUHART: So is that happening on the West Coast?

Senator CONROY: How many trial customers have you got?

Mr Morrow : One hundred and eight.

Senator CONROY: Across how many beams?

Mr Morrow : We have tested with modems and most of the beams. For the actual modems that stay in the house it is 108. It could be one in each beam, but I will double check.

Senator URQUHART: When was that decision made to run that trial?

Mr Morrow : It was always a part of the schedule, before we went to commercial launch.

Senator URQUHART: Why was it made?

Mr Morrow : Because it is prudent to be able to look at each beam working according to the capacity designs and to see whether the protocols are talking to each other—what goes up to the satellite and back down to the ground stations.

Senator URQUHART: Who made the decision?

Mr Morrow : That would have been the NBN project management team.

Mr Ryan : That is right.

Senator URQUHART: There are 108 customers. Do you know how many of them are on the West Coast?

Mr Morrow : I do not, but we can find out quite quickly.

Senator URQUHART: I suggest there are other regions in Australia that are being offered the trials as well. I suspect the whole 108 would not be on the West Coast.

Mr Morrow : That would be correct.

Senator URQUHART: Do you know which are the other regions? Can you provide that?

Mr Morrow : It is pretty much most of the areas where satellite was intended to be served—that will be across all the states and territories. We are happy to provide those specific areas for the 108. We will take that on notice.

Senator URQUHART: When did the trials start?

Mr Morrow : They have been going on now for—

Senator URQUHART: So they have already started?

Mr Ryan : Off the top of my head, they have been going on for a couple of months.

Senator URQUHART: But nobody on the West Coast is part of that trial?

Mr Ryan : I do not know.

Senator URQUHART: Can you find out? I am not aware that there are any.

Senator CONROY: When does the trial finish? When do you go to customers?

Mr Morrow : We will be testing all the way up to the point before commercial launch. As you know, we do—

Senator CONROY: I am trying to remember when that was.

Mr Morrow : Late April or early May.

Senator CONROY: So not too far.

Mr Morrow : Correct.

Senator CONROY: And the second satellite launch?

Mr Morrow : October this year should be when the launch occurs.

Senator URQUHART: Again, what towns are eligible to participate in that program? Is it all the towns on the West Coast?

Mr Morrow : Again, for the trial, it would be really to test the beam. Wherever that beam lands on that particular geography, we would find a spot there. If that covers two towns, it will only be one of the towns and we do not really care—we just need to test the beam.

Senator URQUHART: It is just to test the beam, and so that explains how they were determined. Did people need to apply to take part? Were they invited or is it just where the beam hits?

Mr Ryan : I am not sure of the criterion that was used.

Mr Morrow : We will try to identify how they were selected.

Senator URQUHART: If people had to apply, I would be interested in how many applications you received and then in how many were taken up.

Mr Morrow : I do not think it was a consumer application process. I think it was more us looking for people that we could put modems in.

Senator URQUHART: I have heard concerns from the community that some people that have been put on the trial do not even have a computer. Would you be taking into account the technical capacity and usage in determining the trial participants?

Mr Morrow : I think we are confusing a couple of things. It is not so much a friendly consumer trial application. This is network testing to be sure that it is ready—hence the reason that we have to go into each one of the beams.

Mr Ryan : That is exactly right. For example, the geographical location of the trial is very important, because we try to pick locations both on the edge of a beam and in the centre of the beam—again, just trying to calibrate the service so that it is working as was intended.

Senator URQUHART: So it is not about actually establishing the capacity of it or the bandwidth requirement; it is more about whether it is hitting a mark somewhere on the—

Mr Ryan : Is it performing as was intended before we put it into service?

Senator URQUHART: So it is whether it is making a connection, effectively.

Mr Morrow : It is more than just making a connection. It has to go through a series of protocol tests. There are all sorts of other communication taking place to be able to manage the network. All of that has to coincide with it—the restoration, the triggering and many other different things. It is classic in a satellite network test.

Senator URQUHART: Okay. I would be interested to know how many businesses with high bandwidth needs are being asked to take part.

Mr Morrow : Again, I do not think it is an issue of asking businesses or consumers to test this for us; it is more about us finding an area in that beam geography to confirm that it works with the rest of it.

Senator URQUHART: Okay. How do you determine that it works? Do you get feedback from individuals? What is the process?

Mr Morrow : Typically—Pete, chime in here if you know more—what the team have told me is that there is a modem that goes into that area. That modem knows that it is going to be communicating with the beam that is above. From the ground station—so it goes from that modem—

Senator URQUHART: So someone in a house, a business or whatever has a modem, and that is given to them.

Mr Morrow : That is correct.

Senator URQUHART: So you know exactly how many modems are in that area.

Mr Morrow : Say we are right here. Say this is my modem and we put a satellite dish on top of Parliament House—I would like to do that. We can communicate up with that satellite through our specific beam, because the satellite bounces it right back down to one of the nine ground stations that will be active around the country. Therefore, now we have a communication, touching that ground station, to me right here, and we need to make sure that the modem can connect and talk to the ground station. We need to be sure that the bandwidth going through it is going according to plan and that beams around it are also not having any interference related issues with it as well. I am sure there are many others. The satellite engineers, if they are listening to me, are probably chuckling because there are probably a whole lot more complex issues than I just went through.

Senator URQUHART: What role, then, do you have? Do you go back to the people that you gave the modems to and follow up with them as to how it worked and what their capacity to send out information is?

Mr Morrow : Just give me one second. Sorry, Senator. What was your question?

Senator URQUHART: Do you then follow up? Obviously, somehow or other, the people get the modem. Do you then follow up with those individuals as to how it has worked, what capacity is required and what sort of feedback they get? How do you do that?

Mr Morrow : Yes, we would get feedback directly from them. We would have a direct relationship with the people that have these modems in their houses.

Senator URQUHART: In October, I asked you which towns were due to get satellite, and I think by your own admission you gave an inappropriate answer: that the question would be too difficult in answer. You promised in February that you would get more information, so I will ask you again today: is there any town in Australia with more premises than Queenstown that will be connected to satellite?

Mr Morrow : I think we took that on notice. Didn't we respond to that? The answer is no.

Senator URQUHART: So there is none?

Mr Morrow : The answer is no, Queenstown will be the largest.

Senator URQUHART: Queenstown is the largest.

Mr Morrow : Yes.

Senator URQUHART: What is the town the next size down, with how many premises?

Mr Morrow : I do not know. We will have to take that on notice.

Senator URQUHART: I would be very interested, and I think the Queenstown people would be very interested, in knowing that.

Senator CONROY: They have been dudded.

Senator URQUHART: They have been dudded. That is all I have, Chair.

Senator CONROY: I have a question about the satellite. I read recently that you have entered into an agreement with Qantas to supply the LTSS to in-flight services. Is that correct?

Mr Morrow : No. We have no agreement with Qantas.

Senator CONROY: Are you in the process of negotiating with Qantas?

Mr Morrow : We have no negotiations with Qantas.

Senator CONROY: Have you concluded unsuccessful negotiations?

Mr Morrow : No. We are not in a direct relationship with Qantas. We know Qantas are interested in providing internet in their aeroplanes flying around the country. We know that they have been talking to companies like ViaSat. We know that they are contemplating either being a service provider themselves or using a service provider to provide this sort of service. We at nbn co think that there is some merit in exploring whether or not we offer an aviation based product using the satellite service.

Senator CONROY: Do you offer an aviation based product?

Mr Morrow : Not today, no.

Senator CONROY: Not today. Okay. We are being very careful with our words, I see. I am just trying to understand why Qantas made such an announcement or why there was such a story.

Mr Morrow : Because they are quite keen to do so and we are quite keen to investigate this.

Senator CONROY: I need an expert, Mr Ryan. I am afraid you are not going to help me out on the satellite rollout, are you?

Mr Ryan : In terms of what question?

Senator CONROY: In terms of the impact of having planes fly across a beam.

Mr Morrow : I can help you with that. What would you like to know?

Senator CONROY: What impact would there be on end users on the ground in Queenstown if a Qantas plane fitted with your satellite product flew across the beam?

Mr Morrow : Got it. As you know, Senator—

Senator CONROY: I did not know there was that much excess capacity in the spot beam for you to be able to do this.

Mr Morrow : You were helping lead that part of the design of that satellite!

Senator CONROY: I know. That is what even you could not change.

Mr Morrow : Yes, right. We did repurpose it, however.

Senator CONROY: Yes, I know; you repurposed the second satellite.

Mr Morrow : We did change the second satellite to give it a considerable amount more of capacity than it had had before—almost double the capacity. So we have repurposed the second satellite for additional capacity. As you know, this satellite service is very much a loss-oriented portion of the business.

Senator CONROY: And I am proud of it!

Mr Morrow : Okay. Great! So the idea of looking at other services—and that is us in our think tank, nothing that we have had confirmed and looked at—

Senator CONROY: You just said a minute ago you are very keen to talk to Qantas about providing that service. You just said that.

Mr Morrow : And I am not denying I said that.

Senator CONROY: It is not a think tank. It is: no, you wanted it.

Mr Morrow : You are not letting me finish, and, if you did, you would realise that I am not talking about Qantas. There are other things that we can do with the satellite. Since we have repurposed the whole second satellite capacity, rather than having $300 million sitting up there as an insurance policy, let's use the bloody thing for the good of the country. Think about the Department of Defence, think about corporate services, think about aviation: these people would be willing to pay a premium to be able to use a fraction of that capacity. Let me talk about a fraction of the capacity.

I visited with ViaSat and I asked them about this issue, because our priority is very clearly to ensure that, for these people that are covered by the satellite technology, we can meet their broadband needs. ViaSat have been doing this for years, servicing aeroplanes hovering over the United States and the northern continents, looking at North America, looking at plane consumption and individual consumption and what the impacts are with the beams that are running through their satellites. They showed me that, at any given time, 400 planes up in the air—Qantas has an average of 300 planes in the air is what I read in the newspaper—are consuming about 300 megabits per second. As you know, we provisioned, with one satellite capacity, about 125 to 150 kilobits per second. Sorry, 300 kilobits is what is being used, not 300 meg. I said 300 meg a moment ago. It is effectively two services for 400 planes in the air. We are not talking about a lot of capacity, on the initial analysis. As you know, with 101 beams, the planes do not spend a whole lot of time in one beam. As you probably also well know, we are not worried about capacity for the majority of the beams out in the remote areas of Australia, because there is a whole lot of capacity within those beams. We have to be a little bit careful with those areas around the fringes of the cities that are slated for satellite. There are ways to manage that.

Senator CONROY: And the Queenstown beam now?

Mr Morrow : I do not know whether Queenstown is considered a stress beam or not. The point is that, if we look at it, there is an opportunity to be able to get the NBN where people are. Rather than thinking old school about how to wire up a fixed location and hoping somebody is in that building or house, shouldn't we be thinking about getting broadband to where people are? Are they in the aeroplanes? Are they in their offices? Are they in airport lounges? Are they in the plazas, Martin Place and other areas where they gather together? This is the kind of thinking that would not just restrict it to a silo mentality. We are trying to think: are there better ways to serve the country with such a fabulous asset that do not take away from our priority and main focus on those people in the remote areas of Australia having good quality broadband?

Senator CONROY: I understand that you have a fairly strict fair-use policy on the satellite, though?

Mr Morrow : We do.

Senator CONROY: So it is okay to put a strict fair-use policy and then flog it off to commercial entities?

Mr Morrow : No. We would put a strict fair-use policy out if we did that as well.

Senator CONROY: You could always raise the fair-use policy as an alternative?

Mr Morrow : We are so far ahead of ourselves. Do you think that we should stop and not do anything with aviation on our satellite? Is that what you are saying?

Senator CONROY: I want to understand the impact on consumers on the ground and whether or not you are sacrificing consumers to make money so that the government can ultimately flog off your satellites.

Mr Morrow : I am here to say that we are not going to sacrifice service to the end users on the ground.

Senator CONROY: That is a very brave call.

CHAIR: I also live in regional Australia, Mr Morrow, and have worked over many years with people in very remote parts of Cape York and the Torres Strait, where increasingly health services are being and will be delivered remotely. I would be particularly troubled if the ability to send an X-ray of a lung from Saibai Island to Thursday Island Hospital, Cairns Base Hospital or Brisbane was compromised by someone watching a movie between Saibai and Brisbane. How do you ensure that that capacity will never be compromised into the future? That will grow exponentially, where we will be able to deliver telehealth into remote parts of Australia, and it will take big lumps of capacity.

Mr Morrow : This is where this fair-use policy comes in. Our repurposing of the second satellite gives a major boost for these areas of capacity to deal with the things that you are referring to. I think that gives everybody from that area a whole lot more assurance that they have something they have not had in the past. Secondly, we will offer a priority based service that cannot be jeopardised. If Pete here decides he is going to watch a marathon of something on Netflix and he is consuming data that jeopardises my priority type service, then we cut him back a bit to where education type services or hospital based services—whatever the government declares against it—can be preserved. That is important. I can tell you that our former of Minister for Communications was obsessed with making sure that this was looked after.

In reference to your question, if the aeroplanes were coming through, we would block them. We would not allow that. Again, we would do it. We are way ahead of ourselves. We are interested in that, but only if it does not impact people that are on the ground using this service. The good senator here asked about the upgrade path as it relates to satellite. Even with us repurposing that $300 million satellite out there, at some point it could mean that they are still constrained and restricted. The way in which we would overcome that is not likely to be building fibre out to those very remote communities; it is probably going to be looking at putting up a third satellite. We will look at that at the time when it is needed. But the very fact—literally, over the last six months—of being able to double the capacity of what anybody up until that point thought that they could have, gives us a little bit more headroom, a little bit more runway, before we need to consider that.

CHAIR: This is one piece of technology where I think a 'build it and they will come' approach actually does work. If you put the capacity into these communities, people will think differently and people will be able to be innovative and think about how we can solve problems in a different way.

Mr Morrow : I agree. It takes, as Senator Conroy would know, four years of planning to go into preparing for that next satellite. I was with satellite manufacturers recently, and the technology is moving superfast there too. The difference between our design satellites and the new ones that are getting ready to be built and put up into the sky is amazing. That helps us think about that. But the reality is that that is going to be a government decision about spending money that does not have an economic return. Stephen Rue, as a CFO, would say that will always be outside the sphere of offering an economic return, but that does not mean that there is not a social or national ecosystem benefit behind it. But that would be outside the remit of nbn co.

CHAIR: It probably leads, beautifully, into your line of questioning, Senator Johnston.

Senator JOHNSTON: Mr Morrow, thank you for that. This is extremely interesting. The fair use policy strikes me as being the one area where you do not exercise commercial discipline. Is the fair use policy in writing? Are the parameters of the fair use policy set in a way that mandates the preserved bandwidth that you must retain for those users who are deemed to require the fair use policy?

Mr Morrow : Yes. I know the senator from WA is very concerned about this as well.

Senator JOHNSTON: Precisely. Senator Urquhart and I have a lot in common, in many respects.

Mr Morrow : I will point out that there is going to be a fundamental quantum shift with the new satellites versus the interim satellite solution that we have today. The interim solution is the experience of the people in WA; we have, roughly, 35,000 people using the interim satellite service right now. That experience is poor relative to what they need—no denying that.

Senator JOHNSTON: But it is still better than nothing.

Mr Morrow : It is better than nothing and that is why they are not disconnecting. The fair use policy that was put in place for that was a written document that you, as a service provider, sign to say you are not going to have any more of your user using this much, because it would take away from anybody else that is using that satellite service. The problem was that the providers either chose not to enforce it or had no means to enforce it, and we had no means other than saying, 'You guys are using more than what your allotment is,' and there was really, virtually, no way to control it. Our max load, I think, on this was over 40,000. The first thing we did is that we went and bought more capacity from the company that we leased this from. That gave a little bit of relief. Then we said that, even when a person disconnects because they move, no longer want the service or could not afford it, we would not replace that customer, thereby giving more capacity per user to be able to help with this.

But, again, we have learned so much from that about how to design the new products, services and protocols. The fair use policy is very different on the new system, to where we can actually see that you as an RSP are abusing what you have in writing with us, so we are going to contain you. So you will only cause your other customers the pain. You cannot influence what another RSP and all the users have against this. Furthermore, if it gets so bad, we can actually limit even the individual user that exists within that customer base of the service provider. So we will have far better controls—far more restrictive as to where, if you choose to ignore it, you and your customers will pay the burden and it will not affect anybody else.

Senator JOHNSTON: And the ombudsman adjudicates and conciliates between you and the RSPs et cetera?

Mr Morrow : That is correct. In the great relationship we have, the ombudsman will talk to us. They realise the complexity of service provider issues versus NBN issues, versus interim satellite, versus the long term. They understand those.

Senator JOHNSTON: If I can just come to Senator Urquhart's issue, nbn is a government business enterprise.

Mr Morrow : Yes.

Senator JOHNSTON: And the rules for government business enterprise are strictly commercial functionality.

Mr Morrow : That is correct.

Senator JOHNSTON: You have no capacity to be a benefactor or provide charitable relief.

Mr Morrow : Correct.

Senator JOHNSTON: Notwithstanding the requirements of any regional part of Australia.

Mr Morrow : Correct.

Senator JOHNSTON: So you have to function commercially. Is that what nbn was set up to do?

Mr Morrow : It has been the remit, very clear, since this executive team came in.

Senator JOHNSTON: Very good. I am very happy with that answer. That tells me exactly the nature of the animal that is nbn co. It is a commercial business. And you have used that expression a couple of times—it is a business.

Mr Morrow : That is right.

Senator JOHNSTON: And we cannot get away from that, no matter how hard we try, because it is cast in statutory stone.

Mr Morrow : That is right.

Senator JOHNSTON: Chair, having finished that line of argument, if I can go to another every which is a bit of a deed poll—and I will raise it, if I may, with your indulgence. It is about insecurity. If I transgress on an area that you do not want to discuss, I am very happy for you to say, 'No, we don't want to discuss that.' Today, we have heard about fibre—skinny and fat—routers and nodes. What I am really interested in is: how secure are the data moving through these conduits from interception, particularly at the node, at the router. Do we have a protected tactical data link, or do we encrypt anything between the satellite and the ground stations, et cetera? Can you help me with that?

Mr Morrow : I can at a fairly high level. Because we are what we refer to as a layer 2 business, if you imagine a data stream coming down, they actually put it in what they call 'envelopes'. There will be some header information that says this packet is being sent over to WA. Then something underneath will say this is going to this particular router and needs to, ultimately, get to this IP address. Then inside is what we refer to as the payload. We cannot see it. There is something called deep packet inspection that allows people to look in and have a go at that. We have incredibly limited capability to be able to do that.

Senator JOHNSTON: Limited by what?

Mr Morrow : Limited by the technology to look within—we cannot. We do not have the capacity, the capability, to do it. So, therefore, if somebody breached our network, they too would not be able to look in because there is no way to look within the payload. Could they reroute and send it to somewhere else where it has more of a deep packet inspection? Perhaps. Our security team looks at this on a regular basis. We work very closely with ASIO to ensure that this is a network that is very sound. They have been very close. They have not directed us to do anything, but we have very deliberately chosen suppliers and vendors that are well known for keeping high secure network architecture. The integrity of whoever that manufacturer would be, as you may know, most of them are foreign to Australia.

Senator JOHNSTON: So I would physically be required to access the node if I was going to reroute the data?

Mr Morrow : That is correct. On a fibre to the node, there is no rerouting other than going out and manually doing a jumper and switching your data stream over to a—

Senator JOHNSTON: To a position where I could analyse that data at my own measure?

Mr Morrow : That is correct.

Senator JOHNSTON: What sort of equipment would I need? I take it that it is very difficult to do.

Mr Morrow : First of all, you would need the locking code access to be able to get into the node. Even the pillars—and, Peter, you should talk about this—of the historic Telstra network and the copper bits that were taken over have locking mechanisms on the metal cabinet that protects the—

Mr Ryan : That is right. There is a key that you need to, once you take the top of the pillar off, actually unlock it. That allows you to take the sleeve straight off, and that exposes all the wiring within.

Mr Morrow : Our exchanges are often co-located with Telstra. There is very high security from a camera point of view, from a lock and from a monitoring point of view. Where we have built our own buildings, they are built with the latest security in mind to prevent somebody from coming in to do the same thing.

Senator JOHNSTON: What about the copper?

Mr Morrow : The copper can be accessed by anybody. So you and I, at dark hours, could go and pull—

Senator JOHNSTON: Two alligator clips—that sort of thing?

Mr Morrow : Yes, so you could access the copper without any keys if you pull up a pit cover—

Mr Ryan : Yes, if you are just pulling it out of the street.

Senator JOHNSTON: Right, we do not want to talk about that.

Mr Rue : Senator Conroy, could I answer some questions—

Senator CONROY: Yes. I was going to come back to one I think I asked earlier, so go for it.

Mr Rue : You asked about the strategic review and about the percentage of aerial to underground. It depended on the analysis. As you know, there were various scenarios, but it ranged from 12 to 20 per cent aerial, depending on the scenario.

You also asked about copper costs—remediation costs. The answer is about $1 million year to date.

You asked about battery costs and nodes. It depends on the node and the size of the node, but it ranges from $1,000 to $2,000.

Senator CONROY: I asked earlier if we could get a breakdown of whether FTTN speeds include FTTB speeds and if we could get them at break-out. It is very easy to have a high average if you have got a small number. It might be a better to give the mode—the most commonly occurring speed—rather than an average, which can be distorted by the injection of a small number of really high numbers. I am talking about the concept of an average.

Mr Rue : Sorry, that it is our mistake. I thought Mr Simon answered that. We will try to get you that.

Senator CONROY: I did not hear his answer to that one. Mr Morrow, last time we were talking about FTTN you said there was a satisfaction rating of 7.7 out of 10. Now you are saying, plus 18. I am just trying to understand. You have changed the metrics. I just wanted to—

Mr Rue : Apples and oranges. NPS is the net promoter score. That is where we ask people: 'Would you actually be promoting NBN on this service the way this is today?' If they say, 'Yes,' we will add all of those up. For those that say, 'I am neutral,' we ignore them for this calculation. Those that say, 'I would discourage people,' you take the positives minus the negatives and that becomes the net promoter score.

Senator CONROY: My understanding of net promoter scores is that unless it is an eight no-one takes it seriously; it is just discarded. An eight is someone who would actively promote it. This is just the way that PR people have explained this to me: eight, nine or ten is woohoo, tick; anything below an eight is dismissed. That is the way that normally works. I am happy to be corrected by some marketing professionals.

Mr Morrow : I would be happy to do that. I have been around NPS for a long time. I have used it in every company that I have ever been at. It is a key metric for understanding whether or not you will have loyalty and recommendation with your product. There is a user satisfaction score that gets into your sevens and eights. That is not correlated to an NPS. That is the reason that people use the net promoter score in addition to satisfaction surveys. So, much like what we have said before, we had done an early trial. FTTN and FTTP were, roughly, very similar to each other.

Senator CONROY: No, one was in the eights and one was in the sixes. That is why I was questioning the seven average last time.

Mr Morrow : No, they were both in the mid-sevens from a user point of view. Six months after launching FTTN there was a plus 18 score. Six months after launching FTTP, even later in time, there was a plus 19 score. They are roughly about the same when you look at ironing out the wrinkles within the process of looking at it. Clearly, FTTP has risen up to I think it is a plus 29. We hope that FTTN will follow that same trajectory and path that we saw with FTTP. Those that are out there are both very different and very positive.

Senator CONROY: Around the world I think they have demonstrated that FTTN does actually work and is a better service than ADSL2+. That is a given. No-one is claiming that FTTN does not work. Whether it is reliable or not is a different question. I would hope that somebody who moved from the pretty ordinary ADSL2+ services that are around the country would be saying, when they got it, that FTTN was better. I would be shocked if they were not. There is plenty of evidence that some people are not. We have passed those on to you.

Mr Rue : Can answer one more question?

Senator CONROY: Yes, Mr Rue, my apologies.

Mr Rue : Senator Urquhart asked about the next town after Queenstown. The answer is Halls Creek, which, of course, is in WA.

Senator CONROY: How many people live in Halls Creek, Senator Johnston?

Mr Rue : That is a test.

Senator JOHNSTON: Halls Creek is a thriving metropolis of about, maybe, 50 people!

Mr Rue : There are 728 premises.

Senator JOHNSTON: There you go. I understated.

Senator CONROY: A lot less than the 3,000 in Queenstown.

Mr Rue : I do not think it is 3,000.

Mr Ryan : It is 1,200.

Mr Rue : We are talking homes, not people.

Senator CONROY: Homes. Fair enough. I want to talk about an HFC drop. Sorry, Mr Rue, there is another one?

Mr Rue : We have not leased anything from energy utility companies, as we thought. The question was: had we leased any fibre from energy utility companies? The answer is no, we have not.

Mr Morrow : That was to Senator Urquhart's question.

Mr Rue : I have no other answers at this stage.

Senator CONROY: I am conscious of our early discussion about nbn co including Liberal Party politicians—or politicians of any colour—in a press release of nbn co's, but I have noted there is a systematic campaign, which looks very tailored, of a string of Liberal Party MPs quoting nbn co officials and one particular nbn co official, in their press releases. It could be that they have all gone to the same website and all found the same quote, but the quotes appear to be very tailored to very specific areas, which would look to be a little unusual. So I am just looking—

Mr Morrow : Can you pass it to me. I will look at it.

Senator CONROY: No. There are about eight or nine of them; it is a campaign. So I am just looking for your assurance that nbn co are not providing individualised information to any politician for inclusion in a—I mean, they might point to a website, and that is perfectly reasonable, and if a politician or even a political party wants to go to the website and pull it off themselves, I understand. But when individual nbn co officials are quoting towns like Nowra, saying, 'Nowra is going to be really good,' it would be an unusual website for an nbn co official to be discussing each individual town in nine different MPs' electorates. That would be an usual coincidence. It is possible, but it would be an unusual coincidence. But I trust that it would be dealt with the same way that—

Mr Morrow : I will look into it.

Senator CONROY: As I said, if they want to access your website and pull stuff off your website and use it, that is fair game.

Mr Morrow : I do not know, Senator, if you have met the guy behind me, Dan Holland, back here. But I charge him to make sure that when we are going into an area we have good news that is out there, because we are rolling it out, and we make sure we get the message out. It is to educate customers. John Simon is all over that stuff as well. That is what we have to do. If someone is pulling a press release out of that and quoting something from that—

Senator CONROY: No, if that is what has happened, I totally understand. That is normal business, but if stylised input is being made into MPs' press releases, I am sure you would agree, that would be cross the line. I am happy to forward you some stuff.

Mr Morrow : I will look at it.

Senator CONROY: I want to talk about HFC drops. We were discussing whether they were going to be above or below, and you indicated it would be the same as in the general area; is the cost of an HFC drop different to a fibre-to-the-premise drop? Is there a difference? Would they be roughly comparable? Let us say it is strung across from a telegraph pole or going through a pit. I am trying to understand whether dropping a piece of HFC to a house or dropping a piece of fibre to a house is going to be substantively different or whether you would expect there would be any substantively different costs?

Mr Rue : I believe it is slightly cheaper than aerial, but the average drop, obviously, is a lot cheaper because it is—

Senator CONROY: The average drop of HFC is a lot cheaper than an average drop of FTTP?

Mr Rue : From memory, it is comparable to aerial but obviously a lot of the drops—

Senator CONROY: No, I am saying comparing like for like, if you did an HFC aerial drop and an FTTP aerial drop or—

Mr Rue : It is relatively similar.

Senator CONROY: Relatively similar? And an underground? So 1.9 million homes are getting the same cost of a drop, whether they are getting fibre-to-the-premise drop or HFC drop, roughly?

Mr Rue : No.

Senator CONROY: That is what you just said.

Mr Rue : No. It depends on—

Senator CONROY: No. If it is aerial for aerial, or underground for underground, you said it was the same.

Mr Rue : Yes, but again—

Senator CONROY: We are talking about the drop from the point out of the front gate. That is the only part we are talking about.

Mr Morrow : There are two issues here. There is an answer to your question that we will give you. You said 1.9 million; as I mentioned earlier, that would include large MDUs, and we are not going to run coaxial cable up those large MDUs.

Senator CONROY: I just want to get some facts. The average size of an MDU in Australia is nine. I know everyone's perception is that they are these massive, tall Hong Kong style concentrations; it is not true in Australia. The average MDU size is nine.

Mr Morrow : Absolutely, and as you know the majority of them are very small, which skews that average. It is not even relevant to use an average when you talk about stuff like that. I am merely pointing out that when you look at the larger MDUs, and there is still a substantial number of them, they are not going to get covered with coaxial cable. Even though it is in that four million footprint that we talked about before, and when Pete says 1.9, he is referencing the four million footprint as 1.9 that do not have lead-ins for it because it may not even have cable going down the street as well. We are not even going to attempt those.

Senator CONROY: And that is why I was comparing apples with apples, and not trying to say whether there was a HFC down the street or not.

Mr Morrow : Right. So no-one is even attempting to 1.9 million lead-ins is my point.

Senator CONROY: I know; I was just picking that number because Mr Ryan gave me that number.

Mr Morrow : That is because, against that four million that you have seen and talked about, that is what that responds to.

Mr Rue : I thought you were asking in general terms. There is obviously no NTD. If you are just talking the physical drop, it is quicker to do a HFC drop than an FTT—

Senator CONROY: I did not ask about quickness; I asked about cost.

Mr Rue : Yes, well therefore it is cheaper. In relative terms it is similar, but a HFC drop is cheaper.

Senator CONROY: That is funny.

Mr Rue : That is what I am saying, but, Senator, to be clear: are you talking aerial drop to aerial drop?

Senator CONROY: Yes, or if there was a decision—

Mr Rue : Obviously there is no—

Senator CONROY: If there was an underground HFC drop in an area—and there may not be. I do not think there are many, from my understanding of the HFC rollout in the nineties.

Mr Morrow : There are not many of what, sorry?

Senator CONROY: Underground drops; they are mainly aerial drops.

Mr Morrow : Optus's network is mostly aerial; Telstra is actually the other way around. But, Senator, if it is a home that is sitting there—whether you are digging it up and putting a HFC cable into it or digging it up and putting a fibre cable into it, the costs are going to be close. They are going to be the same for the construction, obviously; and then there are differences when you look at CPP with the NTD or without the NTD that Mr Rue was talking about. And then there is the cost of glass versus the cost of a coaxial cable. That would be the fundamental difference between two varied applications and, again, from an aerial point of view—

Mr Rue : And there are a lot of lead-ins in place already, obviously.

Senator CONROY: The computation was there are 1.9 homes without lead-ins.

Mr Morrow : He is always talking about—

Mr Rue : I realise that, but in terms of the total cost.

Senator CONROY: No, I am just making the point that a drop is a drop. Mike Quigley announced—I know this because I was standing next to him when he did it—that the NBN was moving to build drops fully for FTTP. Have you completed that now through all of your contracts? Everybody who has still got whatever is remaining of FTTP has been getting the build drop?

Mr Ryan : Do you mean if you are the company that builds what we refer to as the LNDN you are also building the drops?

Senator CONROY: It does not have to be the same company.

Mr Ryan : We are still executing a build in bulk drop program, yes.

Senator CONROY: Yes, as you go down and put in—

Mr Ryan : Yes, that is right.

Senator CONROY: Thanks. And one of the advantages of the build drop solution for FTTP was it reduced the customer connect cost—that was my understanding at the time. It brought forward cap ex per premise, but activations cost on FTTP were lower when the fibre drop is done as part of the build drop. That is consistent?

Mr Rue : That is accurate. Except you may be left with some regret capital, of course.

Senator CONROY: Not as large as 30,000 nodes—that is really regret capital. You released your latest results for 31 December 2015. For some reason, nbn co did not divulge the LNDN and the customer-connect cost breakdown, whereas every other time you have done it, you did. Why did you change?

Mr Rue : For simplicity. We listed all of the costs per premise for fixed wireless, FTTP and FTTN. It was just for simplicity, and no other reason.

Senator CONROY: You have been publishing your FTTP cost per premise, broken into LNDN and customer connect, since the year ending June 2014. We have six consecutive quarters of information—six. In June 2014, the customer connect cost was $1,457 per premise and as at September 2015 the cost was $1,564. My question is: why did it go up in that period? Bill drops that you had introduced were cheaper and you had been doing more of them, but the costs had gone up. I am interested in that. It had not gone up by a lot but it had gone up.

Mr Rue : The cost has gone up ever so slightly; that is correct. When you look at the areas where we rolled out and where the customer connect was done, I think there were a lot of Western Australian and South Australian connections which were more expensive because of the geography. There is no other real reason.

Senator CONROY: My question comes back to why you are not doing those two breakdowns now.

Mr Rue : There is no reason other than simplicity. Very soon we are going to have a cost per premise for HFC as well, and it is just for simplicity. There is no other reason.

Senator CONROY: You are not trying to hide the fact that under the Karingal trial you could have a much lower number in one of those columns?

Mr Rue : I am not in the business of hiding anything. It is just for simplicity. I am very happy to tell you the breakdown. I think you may have it there anyway.

Senator CONROY: I have it through to 30 September, but I do not have it through to 31 December.

Mr Rue : I can tell you if you like.

Senator CONROY: Please!

Mr Rue : The LNDN in December was $2,092, customer connect was $1,578 and the duck lease was $749, coming to—

Senator CONROY: Oh yes; our favourite duck lease! Everton's Lukaku's number times the number of goals you scored.

Mr Rue : If you want to talk about Lukaku, I am very happy to do so. The two beautiful goals you may recall—

Senator CONROY: They were.

Mr Rue : When you add those three numbers together you get 4419.

Senator CONROY: Remarkable! That is the cost of fibre to the—

Unidentified speaker: [inaudible]

Mr Rue : He is a striker who plays for Everton, Senator. He used to play for Chelsea. He defected to a better team.

Senator JOHNSTON: In our state we play the real game.

Senator CONROY: In the six months, the total costs were $3,600, $3,500, $3,500, $3,600, $3,600 and—

Mr Rue : $3,670.

Senator CONROY: It is still gradually creeping up despite all of your efforts.

Mr Rue : I did flag, about nine months ago, that the cost would slightly increase because of the areas we were going into. You will recall that the cost per premise is an average of averages and that the LNDN cost can go, for example, from $1,500 to $2,700, depending on the area.

Senator CONROY: From the same graph, I am looking at page 13 of your half-year results for 2016.

Mr Rue : Page 13?

Senator CONROY: Yes, the cost-per-premise graph with four columns.

Mr Rue : Sorry, I have the wrong page.

Senator CONROY: I have it listed as page 13 of the half-year results, not the full-year results.

Mr Rue : I am sorry, Senator. What is the heading?

Senator CONROY: Cost per premise.

CHAIR: It is the half-year results, Mr Rue.

Mr Rue : Oh, the half-year results. I am sorry. I thought you meant the book.

Senator CONROY: No, I said the half-year results at page 13.

Mr Rue : Why don't you talk while I look.

Senator CONROY: On the same graph of your results presentation you have the number 2,300 for FTTN—

Mr Rue : Yes.

Senator CONROY: which without the duct lease component is magically the number in your corporate plan of 1,600.

Mr Rue : Yes.

Senator CONROY: Is this cost in your results an actual, an estimate or a forecast at completion?

Mr Rue : At the time of the half-yearly results, we had preliminary numbers through that looked to be in and around that number, which is why I put that number in our half-year results. If you bear with me, I can find what the number was at the end of February.

Senator CONROY: Oh, a February number! You can give me the February numbers for the LNDN and customer connect, as well, then, if we are being generous with our time.

Mr Rue : I am sure I can do that. If I could only find it, it would help. I have waited all this time for this question, and I cannot find the paper! Let me tell you the—

Senator CONROY: Apart from Kenya, Mr Ryan, has anybody else rolled out an HFC network anywhere in the world? Oh, actually they switched from HFC to FTTH, but let's forget that. When was the last rollout of an HFC network? Kenya started one but dumped it.

Mr Ryan : Anywhere in the world? I do not know.

Senator CONROY: Mr Morrow?

Mr Morrow : Yes, sure. UK Virgin Media I think made a major announcement to build up far more HFC network.

Senator CONROY: When was that?

Mr Morrow : That was I think less than a year ago.

Senator CONROY: There you go. Has it started yet?

Mr Morrow : I do not know. I have not followed that up. They made a public announcement on it. The company made the commitment—

Senator CONROY: Google have made lots of public announcements—AT&T.

Mr Morrow : Again—

Senator CONROY: I am just saying public announcements do not necessarily mean builds.

Mr Morrow : When they said they—

Senator CONROY: They are all playing chicken.

Mr Morrow : are going to do something, I assume they are. I am not in a position to say that they are not a high-integrity company. The reality is that when you look at all the HFC around the world, probably, on a broadband market share, when you remove ADSL from it, it is the highest percentage of the broadband that is being used. That is why you see so much R&D being poured into how HFC can take its life even further. Recently I asked a team of experts whether or not HFC had a finite limit to it. The next day there was an announcement at CableLabs—

Senator CONROY: I had a good chuckle. I saw it.

Mr Morrow : about FTTD, and they said that is has just breathed another whole generation of life into HFC. So you are going to find people in a business driven by economics who are going to say, 'Why would I change my infrastructure that is already in the ground that can offer 10 gigabits per second speeds?' It is a very good question. I think they are doing—

Senator CONROY: If they have to compete with fibre to the home, they would split nodes down to 40, not 600.

Mr Morrow : It is not—

Senator CONROY: When you do not have to compete with fibre, you can sit there and just let people—

Mr Morrow : Don't think that they are doing it today. They are not. They are saying that that is our evolutionary upgrade path. We like that because it is great. You guys can spend all the money, do all the innovation and get the R&D in there, because for Australia, with however many millions of HFC homes that we will have served by that, there will be an upgrade path for them too that will be at a reasonable cost. We will benefit from this worldwide drive towards HFC being a superior broadband technology.

Senator CONROY: If it is node splitting, it becomes comparable, but not on 600. You will not have any competitors except the fibre to the basement.

Mr Morrow : As you said yourself, even FTTP is going to have to have an upgrade. You said that current limitations on what we are pumping down FTTP is—

Senator CONROY: Don't treat the committee like an idiot, Mr Morrow.

Mr Morrow : I am not.

Senator CONROY: That you are trying to pretend that an FTTP upgrade is in any way comparable to HFC node-splitting operations is beneath you.

Mr Morrow : And it is in no way comparable to the cost of getting HFC—

Senator CONROY: Mr Rue, how have you gone?

Mr Rue : I have found them. I was looking in the half-year results pile rather than the February pile, sorry. The February FTTP LNDN was 2,087. Customer connect was 1,577—

Senator CONROY: We saved a dollar. Well done!

Mr Rue : which, of course, includes the Telstra link in there, and 732 for the Telstra duct lease, coming to 4,396.

Senator CONROY: So 3,664 down from 3,677. You are on fire!

I want to introduce you to the guys at Chorus. They are going to snaffle you for an effort like that, Mr Rue—$6.

Mr Rue : We can talk about that.

Senator CONROY: And you were going to give me, if you had them, some preliminary FTTN numbers.

Mr Rue : Yes—2,294.

Senator CONROY: My goodness! Six dollars there as well.

Mr Morrow : I gave your questions on—

Mr Rue : No, it is beyond what we said it would be.

Mr Morrow : I have answers to your question on download speeds. You were asking if FTTB and FTTN were—

Senator CONROY: Yes, the break-out.

Mr Morrow : On average, including FTTB and FTTN, you are seeing 83 megabits per second down with 36 megabits per second up. If you separate out B and N, for N you are seeing 76 megabits per second down and 34 megabits per second up. FTTB is a bit higher than that, with 101 down and 43 up.

Senator CONROY: Thank you.

Mr Morrow : So for FTTN circuits out there it is 76 megabits per second down. Again, the lion's share of those are taking 25 megabits per second or less.

Senator CONROY: Well, you would not waste your time paying for 100.

Mr Morrow : If I wanted 50, why would I? That is the whole point. People do not feel that they either need to pay for or need more than 25 megabits per second service today. What is the trajectory going forward into the future? We have an upgrade path, as we said earlier. Hopefully we can get it to the point where the company pays for itself rather than requiring any more debt or investment by the taxpayer.

Senator CONROY: It is wonderful for you to speak on behalf of everybody about what they need—something I thought only the—

Mr Morrow : I am sticking to the facts of what they are buying. That is all.

Senator CONROY: It must be a wonderful time to be alive for you.

Mr Morrow : It is a wonderful time to be alive, for all of us. It is these committees that make that so true.

Senator CONROY: That is probably the most serious misleading that you have done today, and you have done some doozies.

Senator JOHNSTON: Oh!

Senator CONROY: Relax, Senator Johnston. Mr Morrow and I are good friends.

Senator JOHNSTON: I am enjoying it.

Senator CONROY: He knows I am teasing him. In the last few minutes, I just want to move on to your IT debacle—probably the biggest blow-out that you have been hiding for some time. Previous testimony to the Senate from nbn co has indicated that, under the revised agreements with Telstra and Optus, nbn co will not inherit any IT systems. You will need to build all-new IT systems for the copper network, Telstra's HFC network and Optus's HFC network. Mr Steiger is not here. Mr Morrow, it is tossed to you.

Mr Morrow : Yes.

Senator CONROY: Do you have any knowledge of the IT systems required for the two HFC networks?

Mr Morrow : Yes, I have a general sense of what—

Senator CONROY: When will they be ready for commercial launch?

Mr Morrow : That is all consistent. It is all integrated into the plan. By 30 June this year, we are ready to go. They have already done a number of the IT release uploads that are given the early stages of testing and working with this. We have a fabulous team down in Melbourne that are very focused on the IT elements for HFC, and I enjoy seeing it every time I go there.

Senator CONROY: You would hope, with 1,000 or more people working on this, they would be close.

Mr Morrow : There are quite a few IT people working on this, and we are lucky to have them. Again, it is all factored into the costs.

Senator CONROY: I note you are not denying the 1,000, but that is probably because I am undershooting considerably. But I will move on. Nbn co's half-yearly results indicate that $151 million has been spent in capex on HFC to date. Could you set out what that money was used for.

Mr Rue : That would be primarily in buying what is called CMTS, or cable modem termination systems, which go into the exchanges. They will be the biggest cost.

Senator CONROY: Sorry, modem systems?

Mr Rue : CMTS, or cable modem termination systems. They are the equipment that sits in the exchanges. That will be the largest cost.

Senator CONROY: And nbn co's half-yearly—could you take on notice if we can get a breakdown on that.

Mr Rue : I can, and I can see if I can—

Senator CONROY: There probably is not time right now, but if you can—

Mr Rue : We will take it on notice.

Senator CONROY: Thanks. Nbn co's half-yearly results also indicate $328 million for the half-year on common capex. How much has nbn co spent on IT systems capex for HFC and FTTN to date?

Mr Rue : We will take that on notice. I would have it, but—

Senator CONROY: Is that all the $328 million, or is there—

Mr Rue : No, far from it. That $328 million covers many things.

Senator CONROY: Okay. Could we get a breakdown of that.

Mr Rue : Yes.

Senator CONROY: What is the forecast total for IT capex to FY 2022, the end date of your operating plan?

Mr Morrow : FY22? We have only given figures starting us out for the three-year corporate plan.

Senator CONROY: Seriously, Mr Morrow. You have been so good today. You have not uttered the words—just for everyone who cannot see this, nbn officials are now sculling water. Turning to the opex numbers in your half-yearly results: your employee expenses have risen to $284 million in the six months to December 2015.

Mr Rue : Yes.

Senator CONROY: How much of that is related to growth in IT staff numbers?

Mr Rue : Again, we will take that on notice, but it is one-off—

Senator CONROY: I appreciate that you have so many in there now that you do not notice if you get an extra 100 pop in.

Mr Rue : I look at it every month, trust me.

Senator CONROY: Yes.

Mr Rue : My colleagues—

Senator CONROY: And each time you are here you have a flatter forehead from staring at the IT numbers!

CHAIR: That is a compliment!

Senator CONROY: No, that is from bashing his head on the desk! On page 29, the half-yearly results for nbn co indicate that you have 4,191 employees, a growth rate of 16 per cent from 2015—hence the flat forehead, Mr Rue! Are you saying here that your employee numbers grew by 16 per cent in six months, or do you just have some very expensive employees?

Mr Rue : Right. Sorry—what page is that? I cannot answer that straightaway.

Senator CONROY: Page 29 in the half-yearly.

Mr Rue : It depends on if we are talking average costs.

Senator CONROY: It just says 4,191 employees, a growth rate of 16 per cent.

Mr Rue : Okay. The 16 per cent growth would have been from June to December, I would have thought. The reason why the costs would have gone up so much is, obviously, wages and salaries being based on an average headcount rather than a year-end—

Senator CONROY: I am looking at the number of employees, not the cost. Four thousand, one hundred and ninety-one is a 16 per cent growth rate.

Mr Rue : Yes, that would be right.

Senator CONROY: We were at 2GB radio in January, Mr Morrow—we were moonlighting. You said that nbn co had 5,000 internal people. Was the difference between the 5,000 internal staff you mentioned on radio last January and the 4,191 noted in your results contractors working on your IT systems at nbn co?

Mr Morrow : No. It could be a portion of them. The difference of roughly 1,000 is TSAs—the temporary staff augmentation. That is across multiple different—

Senator CONROY: That is 900 temporaries—

Mr Morrow : Yes, that is right.

Senator CONROY: So you do not recall them, Mr Rue? How does it work in classifications? Mr Morrow said a month after your report that you have an extra 900 people on the books. How does that work in terms of classification?

Mr Rue : As my colleagues know, I like to know the facts, so just bear with me for one second. The difference is, as you quite rightly point out, temporary staff augmentation. That is correct.

Senator CONROY: So, did they all join in that month, or had they always been there?

Mr Rue : No. The annual report is required to list our employees—full-time employees. What is included in our annual report would be for full-time employees.

Senator CONROY: Right.

Mr Morrow : That is certainly within the operating expenses. We are going to account for that.

Senator CONROY: I just note that as at 30 June 2013 nbn co's headcount was 2,808, comprising 2,745 employees, 12 contractors and 51 labour hires—that is on page 40 of nbn co's annual report. And back in December 2013 the strategic review said that the headcount at nbn co was excessive. So if 2,808 is 'excessive', what is 5,000?

Mr Rue : I was not here for the strategic review. But I can tell you that in a growing business we need people to do multiple tasks. In fact, our people are not sitting around and then going home at four o'clock in the afternoon. Our people work unbelievably hard. We need those employees to deliver this very important infrastructure. I can assure you that those numbers are looked at. They are reviewed every month, not just by me—all jokes apart—but by all the executive team.

Senator CONROY: In June last year the Prime Minister said:

At the moment, a quarter of the NBN’s employees - almost 1,000 workers - are employed in the company’s IT departments.

Is that true? It is the Prime Minister, so I am assuming that it is. He would have been the minister at the time.

Mr Rue : If you include TSAs, that would not be far off.

CHAIR: Mr Morrow, I have now chaired two days of hearings into the NBN and associated issues. In that time I have observed that there has been one woman who has appeared in front of us. I am not saying that this is your fault—

Senator JOHNSTON: Could you say that again?

CHAIR: One woman and her name was Ms Rosalie Nelson. She was in fact a New Zealander. What does nbn co do to encourage women into your business?

Mr Morrow : That is a great question. We believe very strongly in the notion, first of all, of parity and, second of all, diversity. We talk all the time about having different thoughts, different backgrounds and different perspectives—different innate characteristics—to help us think in the best way about how we can do better at nbn. We desperately want more women to be a part of nbn. The women we have are fabulous and they are great contributors. We track on a regular basis exactly what percentage of women are in the business. When we look at hiring, we look at how many women were on the candidate list and how many women were promoted. We go through it and talk about it on a monthly basis. We have appointed men at the top to be the stewards to bring more females into the company. In fact, the two gentlemen beside me are two of them, in particular.

Mr Rue : Both Mr Ryan and I lead the change program for the champions of change.

Mr Morrow : We have board members; we have had two fabulous women. Most recently, we had one join from WA, Shirley In't Veld. She has come in with her feet on the ground and she is running quite well.

Mr Rue : Your point is well made.

CHAIR: I am not saying it is your fault. Why don't we put the fantastic broadband to Australia so that young girls in remote areas can become engineers?

Mr Rue : The industry itself suffers from the university intake, if you like, of engineers and into IT.

CHAIR: Do you provide scholarships?

Mr Rue : We take internships, and I think half the internships were women this year.

CHAIR: Fantastic.

Mr Ryan : Graduate intakes.

Mr Rue : Graduate intakes and we train them and follow them through the organisation. At International Women's Day last week we had a morning tea for everybody—we celebrated it. We encourage women's forums to discuss how women can become more involved and can be promoted within the organisation. In our executive team we have some very strong women who lead that on our behalf.

Senator CONROY: I am sorry to butt in. Would it surprise you, Mr Morrow, to know that Telstra's internal cost to run a copper line from a pit to a premises is about $299?

Mr Morrow : Do you want us to put in more copper?

Senator CONROY: No, I am asking whether it would surprise you that they can manage to run something from a pit to a house for $299, but your costing is $1500.

Mr Morrow : We will follow it up to see if there is something we can learn from them.

Senator CONROY: They will not want to show that one to you, because you are paying them a lot more to help you roll stuff out.

CHAIR: I would like to thank representatives from nbn co for appearing today. Thank you for accommodating our requests for questions on notice. It would be fabulous to have those answers by 8 April.

Committee adjourned at 17:03