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National Broadband Network Select Committee

BUCKINGHAM, Mr David, Acting Chief Executive Officer, iiNet

DALBY, Mr Steve, Chief Regulatory Officer, iiNet

McINTYRE, Mrs Rachael, NBN Product Manager, iiNet

Committee met at 10:37

CHAIR ( Senator Lundy ): I declare open this public hearing of the Senate Select Committee on the National Broadband Network and welcome everybody here today. The committee's proceedings will follow the published program. I understand that we are being live streamed back to Parliament House so the committee's proceedings will be able to be accessed through the web and in Parliament House. Before the committee starts taking evidence I remind all witnesses that in giving evidence to the committee they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee and such action may be treated by the Senate as a contempt. It is also a contempt to give false or misleading evidence to a committee. The committee prefers all evidence to be given in public but, under the Senate's resolutions, witnesses have the right to request to be heard in private session. It is important that witnesses give the committee notice if they intend to ask to give evidence in this way, or in camera. If a witness objects to answering a question the witness should state the ground upon which the objection is taken and the committee will determine whether it will insist on an answer, having regard to the ground which is claimed. If the committee determines to insist on an answer, a witness may request that the answer be given in camera, and such a request may of course also be made at any other time. On behalf of the committee I would like to thank all witnesses appearing today for their cooperation with this inquiry. I welcome representatives from iiNet.

Mr Dalby : Good morning. Thank you for the invitation to speak here today.

CHAIR: Thank you very much for appearing. Do you wish to make a brief opening statement before I defer to my colleagues for questions?

Mr Dalby : Yes; we have provided a statement, which I would like to read out. Let us start with 'a policy vacuum'. The strategic review, the cost-benefit analysis and the public debate are all being conducted in a public-policy vacuum, from our perspective. Successive governments have struggled to communicate concrete reasons for an investment in an NBN and debate has continued to focus on download speeds for domestic entertainment. We believe that no national objectives have been presented as the drivers for the construction of the NBN, as they might be for any other infrastructure project. The strategic review continues this failure to address any of these missing components and the cost-benefit analysis has no specific benefits to analyse, only costs.

Turning to national objectives, the Australian public—and, it seems, the parliament—appear to be unsure why the NBN is being built and so discussions continue to be mired on the operational issue of costs, timetables and technology rather than the national benefits. It is the belief of iiNet that there are very clear national objectives that ought to be the focus of national debate and agreement, as they are in other neighbouring economies. These national objectives or goals could include a focus on national productivity, job creation, export opportunities, regional development, industry development, improved competition and improved social outcomes. It is not the belief of iiNet that downloading songs faster or being able to connect multiple televisions should be the drivers of national infrastructure projects.

In terms of business performance requirement, we see unsophisticated comments about downloading songs or movies and what number of televisions could be connected as distracting from what should be informed discussion about economic and social benefits. The performance of data uploading features strongly in a variety of case studies of iiNet small-business customers, which we have attached. In all cases, upload performance is the key to their purchasing decision. Nowhere in the strategic view is there any mention of the consideration of uploaded performance to the small-business sector of the economy, at all. Any business utilising broadband will confirm that upload performance is mission-critical and yet little attention has been given to this issue, which is strategically important to the Australian digital economy.

Businesses considering online services or applications are hampered by the ability of their target market, the consumers, to access those services if their broadband is limited. Without an addressable market, Australian online service development will progress slowly. The importance of broadband performance to both sides of the online supply-and-demand dynamic is ignored in the strategic review, just as it has been in the political debate over recent years.

Almost all discussion has been centred on download speeds for domestic broadband users, the demand site. This is why the arguments over the comparative download speeds of competing technologies have absolutely failed the Australian community. Without a supply-side review focused on service creation and delivery, Australian consumers will have little reason to require high-performance services. Given that the Australian political leadership fails to promote this fundamental issue, it is likely that a residentially focused download-centric strategy for trivial entertainment consumption will be the best that the Australian digital economy can hope for.

Regarding international competitiveness, Australians will see online services developed in countries where a sufficient target market does exist. Increasingly, these mature services will be presented to Australian consumers from offshore operators. This is already happening with cloud services, retail distribution, content delivery, search engines, mapping services and so on. There is hope, however, and some Australian providers of online services are demonstrating that they are just as capable as any others of offering high-value services, internationally. Apart from our own case studies, which we have attached, we would point to the broadband-dependent business of Clive International Pty Ltd, a distance-education company delivering English-language lessons into Asia. I will just add—it is not in my statement—that they are deriving a business case from a demand, in China alone, for a million English language teachers.

Moving on to wholesale and retail questions, NBN Co. is presented as a wholesale-only service provider but iiNet's experience is that this term is not appropriate or correct. The behaviour of NBN Co. extends beyond the strict wholesale service provision into the role more appropriately the responsibility of expert retail service providers. This is illustrated by an insistence on designing and an imposition on the market of a take-it-or-leave-it quasi-retail product set, and a continuing market, communication and advertising program via electronic and print media and direct mail. This behaviour continues despite NBN's prohibition from taking orders from, or supplying directly to, the market. It continues, despite its lack of retail skills or expertise. We suggest that the strategic review has ignored inputs on this front from some of Australia's most experienced internet retailers, including ourselves.

Because NBN Co. insists on controlling the design of retail products, retail service providers are unable to respond to consumer demands or to evolve to meet changing needs. The slow pace of NBN Co.'s product development is related to its remoteness from the end user, and we think it is unlikely to improve over time. Innovation in retail products is more appropriately the bailiwick of those involved in such matters. If NBN Co. had simply offered access to wholesale interfaces or ports, innovative service providers would already have a much greater range of business and residential retail services on offer in the market.

Finally, I go to complexity. Complexity creates cost. Interconnection, in a telecommunications sense, is essential to the provision of services and to any connectivity. An increasing order of complexity arises where an environment is created with multiple network providers, each with multiple technologies. Complexity introduces a barrier to entry for new providers. This barrier comes with a need for specialist skilled resources and the increased costs associated with the development of maintenance of interfaces, product definition, ordering, appointment tracking and fault management of services.

The NBN was initially designed to provide a national, standardised, uniform interface to a single provider. More than 90 per cent of all services were planned to be delivered over FTTH technology and this simplified design promised a beneficial reduction in the complexity and the cost of operating on-line services over the NBN. A multi-technology approach introduces the likelihood that HFC, VideoCell and any other non-fibre based access services will require additional investment in business-to-business interfaces for multiple points of interconnect, with multiple entities rather than a single interface to a single wholesale network provider.

The number of points of interconnect in the initial project was considered a barrier to the NBN for some sub-scale companies, and iiNet believes that the multi-technology approach will only exacerbate that issue, which, it has been reported, has encouraged some owners to exit the industry. This issue—I am talking about complexity—is as much a concern for companies like our company, as an RSP, as it is for access providers.

CHAIR: Thank you very much, Mr Dalby.

Senator CONROY: How many customers does iiNet have on the NBN fibre network now, across all of your companies—Internode, Westnet, TransACT, Adam Internet et cetera?

Mr Dalby : The latest public figure is 25,000. I think it is larger than that but the public number is 25,000.

Senator CONROY: At your open day last year—I do not think I had met Mrs McIntyre before—Mrs McIntyre noted that your NBN fibre customers are using 60 per cent more data than your DSL customers. Perhaps I can quote you—and I did not know you were going to be here!—but if I can quote you:

Initially we did think particularly on the download piece that it might be a bit of a blip, that customers were getting a lot faster speeds so they were initially using the service a lot more.

We're talking in the region of 60 percent higher download and upload usage than we're seeing on customers' ADSL and Naked plans, and it hasn't been a blip, it's effectively the new norm.

This certainly mirrors NBN Co.'s experience. In their corporate plan they demonstrated that NBN Co. customers were using about 50 per cent more data than the ABS coverage; I think it is up on the wall there. Is this still your experience, taking into account the customers you had back in October—that it is not a blip that has gone away four or five months later, that it is continuing?

Mrs McIntyre : No, that is absolutely what we are still seeing. I believe 68 per cent of iiNet customers, as is on the public record, take a higher than 12/1 service on the NBN fibre, of which around 30 per cent take the highest, 100/40, fibre speed.

Senator CONROY: So, 30 per cent of yours are on the top package at the moment.

Mrs McIntyre : Correct.

Senator CONROY: Are you able to describe for us what your NBN customers are using this extra data for? Are they just hooking up for TV? Are they just downloading music faster?

Mrs McIntyre : Typically the NBN rollout has enabled iiNet to reach customers that we previously would not have had access to, and I think many of those customers were on the lowest ADSL speed. So certainly it has enabled them to do a lot more with their internet that perhaps those in metro areas have taken for granted, whether that be online banking, shopping over the internet, streaming. So certainly there is a demand side, but we are absolutely also seeing our business customers using it to actually do business, whether that be download or upload; we are seeing massive increases in that.

Senator CONROY: Okay; we wanted to come to some of the case examples that were described earlier. And again, I apologise: I did not know you were going to read it out. There were a lot of quotes in there that I thought were very important for the committee to take note of. I note from your submission that upload performance is the key to the purchasing decision of your small business customers—and you have stressed that a couple of times already. And you also note that, in a variety of case studies of iiNet small business customers—which are attached to your submission—data upload performance is in all cases the key to their purchasing decision. And you go on to say:

Nowhere in the strategic review is there any consideration of upload performance to the small business sector of the economy, or at all. Any business utilising broadband will confirm that upload performance is 'mission critical' and yet little attention has been given to this issue, which is strategically important to the Australian digital economy.

Could you just set out what the upload performance differences would be for your NBN fibre customers versus the other customers that you have on the other technologies? You have acquired TransACT and you have acquired Adam, and they had other technologies. What are the differences, and what are they doing with it?

Mr Dalby : Well, we should split that between residential consumers, I guess, and those in the business sector. And maybe for a bit of background, we will point out that whilst the company started off as a residential service provider we have over the last four years entered the business sector—the small to medium end of the market. And that sector has grown so rapidly that it now represents about 20 per cent of our annual revenues. Mr Buckingham might want to expand on that. So, that is just putting it into context. The size of our business market—the importance of that to us—now represents about 20 per cent of our revenues. It is more lucrative in terms of margin, and it is growing at a much greater rate than our residential customer base is. When we focused on case studies, whilst we have had feedback from residential users, there is more enthusiasm for those in the business sector to give us feedback as to how it has transformed their business lives, rather than downloading songs and being able to subscribe to FetchTV—which is cool, but we do not see that as a driver of the economic opportunities that I think this infrastructure brings. Perhaps you should remind me of the question so I can come back to it.

Senator CONROY: We only got your submission this morning, and I know you have plenty of other things on your plate than writing submissions for us, but we really appreciate that you have gone to the trouble. Could you take us through a couple of the case studies and outline how they are using it? I am not sure that everyone on the committee has had a chance to read your submission fully yet.

Mr Dalby : Maybe I can open it up and then go through them in the order that they present themselves in. Rather than reading it out, I will just verbalise it. Perth Web Design is a great little web design company operating in close proximity to the city but outside the city, in Victoria Park. Their clientele generally was restricted to people who could come to their premises. They design websites and want to show a website to the client before the client can sign off on it and say that it is right. For them to send a copy of the website, preproduction, to the customer was very difficult, so it was going onto a portable hard drive. They preferred that the customer would come in and have a look at it on-screen. They would say: 'That's cool, but I don't want green. Can we have blue?' They would make the changes and that would be done.

The same thing is happening now except the customers are remote. They are able to upload the whole preproduction website—which is many pages, lots of data, lots of content—either to a cloud environment or to the customer's premises. They can review that in their own premises and approve it and suggest changes. They can make the changes. It is an almost instant upload, again because of their improved performance on the NBN. That is great for them in terms of productivity and service to their customers, but it means that their customer base can now be anywhere, not just in the Perth metropolitan area. They have seen considerable improvement, a lot of interest, and they are pretty happy with that, because that extends their market to, dare I say it, a global market. The ability to upload those services, that data, really transformed that business.

The Meander Valley community radio station in Tasmania is an interesting story. It is a 24/7 radio station manned entirely by volunteers. Their programs are all pre-recorded. To put their programs together, they would have to work on a roster. They would go into the little, reasonably well-equipped studio in the radio station and work on site to get their pre-recorded programs plugged in and ready for cuing. When the midnight shift comes on, they just start playing. They found that, by those volunteers being able to get access to decent broadband services in their homes with the NBN, they could start doing that at home on their own laptops and then uploading it directly to the radio station. That saved people from being rostered at two o'clock in the morning, when they can get access and have their turn in the studio. They are doing it much more easily and with less disruption to their family life. That seems trivial, but it is a very strong focus on the upload capability in the home, being able to do it for work. I particularly like that one.

There is a gentleman in Hobart whose office is in Ballarat—that is a fair old commute in anybody's life. He is an editor of a fairly glossy online and also print AV magazine—an audiovisual experts/professionals magazine. Again, it is the same story. He does the stuff at home. He has good-quality broadband at home. He has now upgraded the Ballarat office as well. He is working from home much more often and avoiding this substantial commute from Hobart to Ballarat. There are a raft of those examples. These are the ones we have included.

The final case study, of a software developer, was added at the last minute. It is the same sort of thing. They had a pretty good ADSL2 service. I did not want to put it in print, but it was reported as being up to 24 megabits per second, so they must have been very close to the exchange, getting really good ADSL. But the upload capability of even a first-quality ADSL2 service is still limited to around one megabit or one-and-a-bit megabits per second. They made the shift to the 40-meg upload. That was the driver for them. They are uploading whole, finished software—preproduction, again.

Senator CONROY: Do you have an estimate—I am just going from your testimony—of what that small business community is taking? Are they all wanting the 40 megs and up, or are they happy with lower upload speeds? Do you have a profile of what a small business needs when it realises what it can then do in terms of upload?

Mr Dalby : We are probably a little bit biased in the samples we have given because they illustrate the point we hope to make. But for most of them where their purchase decision is about upload speed they have just gone for the top. They are buying residential quality services here. They are not business services per se. The cost to them of that residential level service is quite insignificant against the productivity gains they are getting, so they are just going for the 40, which is the top option on the product list.

Senator CONROY: I just have a couple of questions, going back to your submission for a second, to do with the multitechnology mix model set out in the strategic review. You mentioned the complexity of having to interface with lots of different technologies and possibly different providers.

Mr Dalby : Yes.

Senator CONROY: You said—and I think you read this out—that:

A multi‐technology approach introduces the likelihood that HFC, VDSL and any other non-fibre based access services will require additional investment in business-to-business (B2B) interfaces, multiple points of interconnect (POIs) with multiple entities, rather than a single interface to a single, wholesale network provider.

Are you going to be bearing that extra cost or are you going to be passing that on?

Mr Dalby : Yes, initially we will have to foot the bill for that. Some of that will be absorbed into the business, but some of it will definitely have to be passed on. The cost to us is not always in simple financial terms. I should not say that with Mr Buckingham sitting right next to me! It is also in the delay to market. It is not, 'Here you are; switch this on. We're right. Let's go.' It is a one-year or two-year exercise of developing interfaces that can talk to each other between our native systems and the network providers' native systems, which are not to a standard. And so we may want to sell a particular service to a particular customer set, but we could have a one-year or a two-year delay in delivering that because either we or the other party are not ready to go.

Senator CONROY: I have one final question. The government's strategic review made some assumptions about who will be responsible for customer premises equipment under the changes that are being considered. In particular it states that:

the provision of CPE and any in-house wiring to the network termination point will be at the customer or RSPs expense.

That is on page 82.

The strategic review is also ambiguous about who will pay for battery backup for non-priority assist customers under the new arrangements. From my reading of it, it is possible that the battery backup option will be at the RSP's expense. Are RSPs likely to incur any additional costs as well? What is your preferred method for the CPE? I think you have the bob and you come in and do a fair few things. Can you just take us through what extra costs you see coming through this.

Mr Buckingham : Adding to the point that Steve made earlier about interfaces and product variety, that is all a bit of an unknown right now. What we charge customers for and what we end up wearing ourselves is a complete unknown. We need direction before we can make that decision. This is a serious cost, though. We are in the hundreds of dollars here and we cannot afford to wear that kind of investment, quite frankly, unless we can get the return our investors require. I think we are confident from our experiences in other areas where we actually have infrastructure that goes to the customer's house—for example, in Canberra—and we have done some business casing ourselves that we can pass that cost on.

Senator CONROY: And that is hundreds of dollars that you will have to pass on?

Mr Buckingham : Yes.

Senator CONROY: Thank you. Did you want to say something, Mr Dalby?

Mr Dalby : I wondered if we picked up your point on the battery backup.

Senator CONROY: Yes, the battery backup is a similar issue.

Mr Dalby : It is, but it is much more messy, I think. With the CPE and the customer cabling, we can understand that, we can see that and we can control it, and it is largely going to be a one-off expense, I would expect. However, with the battery back-up, the batteries have a finite life and that introduces issues of monitoring, of alarms and of replacement when it comes time. You and I, Senator, could probably deal with a battery replacement in our own homes, but my 92-year-old mum will not and maybe Mrs Smith across the road will not want to touch it. So that is where we get into this area of concern that we are having imposed upon us an obligation for which it is not clear to us who is going to foot the bill and what the national protocols for standards will be. When does the CSG kick in on these sorts of things? What is the TIO going to say when a customer rings up and says, ''I rang iiNet and said the battery's flat, and they've told me that's my problem'? So there is a lot of uncertainty around that. Rachael has been very much involved in conversations at an industry level. Do you want to add anything?

Mrs McIntyre : Sure. I think what is not clear as well is what the industry standard will be in terms of informed consent. The additional cost to the business is that RSPs will have to very clearly ask customers, if they either choose to take a battery or choose not to take a battery, whether they fully understand the choice that they are making. So there is an additional cost in the point of sale to make that choice clear to the customer so they understand the obligation on them and the decision they are making. In addition to that, to take Mr Dalby's point, most people that will take the battery, because they need it for security, will be the least likely to be able to change that battery or understand what the various alarms mean. In addition to that, if different RSPs have different standards, it may then be difficult for customers to move between service providers, because they have been set one expectation—that is, that a service provider may look after and maintain that battery—and the service provider that they are moving to may say, 'Actually, that's your obligation.' So there is a lot of uncertainty within the market. I think also that we are initially telling customers that the hardware CPE equipment that is installed in their premises is under the ownership of NBN Co. We are saying, 'Don't touch it—oh, except if the battery starts alarming.' So there are mixed messages to the consumer which will cause confusion and cost to the RSP.

Senator CONROY: Thank you. I apologise: I have to go and do a press conference outside, so I just have to leave the table for a few minutes. But thank you very much.

Senator SMITH: I have a couple of questions. Mr Buckingham, since the release of the strategic review and a refreshed business plan or business approach for the National Broadband Network, what can you tell us about investor confidence broadly about whether or not the NBN will be built now? Has there been a change in market conditions or market expectations?

Mr Buckingham : I am trying to remember the date—back in February 2013, I think—when Mr Turnbull announced his overview. I think it is fair to say that I felt that day, or that week, that confidence went up. The telco sector enjoyed—certainly from a stock market perception—an increased belief that the NBN might get built.

Senator SMITH: Was that in contrast to the previous regime?

Mr Buckingham : I guess it must have been.

Senator SMITH: There was some doubt under the previous government as to whether or not the NBN would be built.

Mr Buckingham : I am not going to comment about investors' doubts. Over the years that I dealt with investors prior to February 2013, I cannot honestly say that I picked up a lot of intelligence from investors that they did not believe it was going to get built. But in that particular week, as that plan got outlined, I think it certainly surprised me that the market seemed to feel, 'Now there's a chance this thing will get built quickly and effectively.'

Senator RUSTON: Can I just ask you why you were surprised.

Mr Buckingham : Probably because I had not heard a lot of anecdotal feedback—over many, many meetings with investors over a couple of years prior to that—that there was potentially a disbelief in the build happening. I guess I had not picked up that sentiment.

Mr Dalby : Could I add that it was an ongoing conversation. It was not as if there were a lack of interest or a lack of conversation; there was a lot, at every meeting with every investor, banker or whoever it might be that was meeting with us from that sector. It was not for lack of interest but there was a change, I think, in their expectations. Therefore the tone of the questions possibly changed and the tone of a conversation possibly changed at that time.

Senator SMITH: Could you talk to us a bit about your relationship with NBN Co. and how you would describe NBN Co. in terms of your business to business relationship, how cooperative and constructive that relationship was? Are there any lessons to be learned from the new administration in regards to your experiences under the previous governance arrangements or management team?

Mr Dalby : Given that we made a strategic decision very early in the piece that we would be at the front edge, the leading edge, of the NBN rollout, we would participate in trials, pilots, experimental exercises, we had an expectation that we would hit some speed bumps and that we might shed a bit of skin here and there. There was that understanding. We are not babes in the woods and we are very happy to push that innovative leading edge. So I would like to carve out and set aside any of that tension or perception that things were not being managed very well, simply because it was a new company, newly established, and a lot of people did not even know each other within the business. I could comment that I have been to meetings at NBN Co. offices in North Sydney where I have introduced different NBN staff to each other. It was a very new business very rapidly growing. A lot of people were coming to terms with what was going to happen and what would happen next, what should we do first, what should we do next.

Given all of that and given an industry comprised of several hundred participants all wanting to argue from their point of view, and we are certainly not shy about arguing our point of view, we expected some pushback. We got a fair bit of pushback and we continue to get pushback today from NBN Co. We still have not resolved a lot of commercial issues, and those discussions have been quite robust and will continue to be. We are not entirely happy that we have not resolved those; we want them resolved and we will continue to push hard. I think we have seen a reasonably high level of turnover of staff. Rachael on a day-to-day basis is interacting with a lot of NBN Co. staff and it is a constant introduction to new people who want to know who we are, what we do, what we think, what our customers are like, and that is very frustrating. So there is a level of frustration as well. We have been very disappointed in delivery performance for NBN Co. in terms of meeting objectives set either quite publicly or for us in specific areas. We have expressed that disappointment quite openly to the NBN staff that we interact with. It is not all roses.

Senator SMITH: It has not been a bed of roses.

Mr Dalby : No.

Senator SMITH: In the submission you make the point quite clearly that it sounds like NBN Co. might not be quite clear about what its role is. You have it out there marketing to consumers when it is only a wholesale exercise. You have it involved in production design. Is one of the key messages for the new management team to be clear about what it is NBN Co. is expected to do?

Mr Dalby : We would probably draw the line in a different location to where NBN management want to draw the line. But to pick up on that point, matters that touch on retail consumers should be left to us. When I say us, I talk about the RSP industry, the retail service provider industry, as the experts in providing retail services. That includes product design, added value services like battery backup—all those sorts of things. In terms of promoting availability to customers, that should be our responsibility as well. It is a matter of public record, and the media has made a great meal out of this over the last few years, that rollout deadlines have been missed, but that does not stop NBN Co from advertising—from direct mail, television and newspaper advertising—saying, 'It's come to town; sign up.' It creates confusion in the minds of the actual customers who may want to sign up with NBN Co but cannot. It is a counterproductive exercise for NBN Co to be doing that sort of advertising. It is also not helpful to us to be told that we can have this set of products and nothing else. We have customers who are giving us feedback constantly about what they would like to do and we have to say to them, 'Sorry, it's one size fits all. It doesn't matter whether you're a retail consumer, a residential consumer or a business consumer; that's it. Take it or leave it,' which is very much the attitude that comes out of NBN Co: take it or leave it.

Senator SMITH: In an earlier response to some questions, you talked about complexity. Is it that the mixed technology solution necessarily means it will be more complex, or can that complexity be managed if there is an appropriate, early discussion between RSPs and NBN Co? There will be some complexity because now it is a multi-technology solution, but can that complexity be minimised? Does it necessarily have to be very complex?

Mr Dalby : It does not necessarily have to be more complex than it needs to be but, certainly, it goes without saying that, when you have more choices, you have more complexity. And if we have more choices of network platforms—HFC, fibre to the home, fibre to the node, DSL, satellite, wireless, 3G, 4G—all of those choices as a network service provider, you have to have interfaces to all of them, you have to design products that will fit in all of those environments and with their individual limitations. We try to simplify that by having a similar product with a similar price so that the platform should not make too much difference. We are absorbing that complexity ourselves and trying to minimise it.

Where we have multiple providers of network and multiple technologies for each of those, then we see the potential for much greater complexity. We would caution: if that has to be the case—if that is the environment we will be operating in—please let us try, as much as we can, to use the technology that we have got to design out the complexity of the relationship between us and those network providers so that there is some form of standardisation. Who knows how that can be achieved?

Mr Buckingham : Can I jump in?

Mr Dalby : Yes.

Mr Buckingham : We are hardly seeing perfect operational performance right now on the FTTP plan in terms of the rollout. You have heard all the issues.

Senator SMITH: Yes.

Mr Buckingham : We are just going to add to that. That is my big fear.

Senator SMITH: Right. And the customer experience? Does the complexity that an RSP may experience necessarily mean that the customer or the consumer experience needs to be complex?

Mrs McIntyre : Just to illustrate that with an example of the multiple technologies: a customer right now who is receiving fibre to the premises has the choice of 100 and up to 40 megs upload; a customer who is next door or in the next suburb and might be also running a business from home and has fibre to the node may have an upload of up to five megs—that is a massive difference; five and 40—and their maximum download speed maybe 25 or less. So it creates, potentially, the haves and the have-nots, depending on where you are, and that—

Senator SMITH: But there could be some consumer choice involved in that as well.

Senator LUDLAM: What—are they going to move house?

Mrs McIntyre : Yes. No, they will only be offered one technology. If they are provided an NBN service by fibre to the node, they will not be able to say, 'Actually, I'd prefer wireless or fibre to the premises,' unless they are given the opportunity to pay for that, which will be, from what I have heard, multiple thousands of dollars—if they were to bring that fibre to the premises, if that is in fact actually offered. So the complexity is for the consumer, absolutely, because it is not a standardised, homogenous service.

Senator SMITH: Yes, that is right. I just want to go to your Western Australian experience. The strategic review made it very, very clear that there had only been 335,978 premises passed. It makes it very clear that 16,891 of them were in Western Australia, but that compares with 15,000 in the ACT and 40,000 in Tasmania. Of the 16,891 that were passed, just 2,086 were activated to the National Broadband Network, and of those that were activated 858 were greenfield estates and 157 were brownfield existing premises.

Mrs McIntyre : The numbers are slightly higher than that now—but ever so slightly.

Senator SMITH: I hope so. These are 30 September numbers.

Mrs McIntyre : Yes.

Senator SMITH: I would hope that they had improved. These are published for the world to see. Using your Western Australian experience, how can that be? What was happening?

Mrs McIntyre : We personally are very upset by it. Perth is our home territory.

Senator SMITH: It is my home state, as well.

Mrs McIntyre : We have many customers who come to the open days who are waiting for the NBN.

Senator SMITH: You have great ads.

Mrs McIntyre : It defies belief. We are very upset that there is not more access in WA. One of the challenges is that I think it is in the region of nearly 50 to 60 per cent are deemed as premises passed, so we have customers ringing and they have been told they can sign up, but when it actually comes to signing that order, they cannot sign up, because the premises passed—it is very misleading—effectively means it might run down to their corner but it does not come all the way to their premises, so they are still waiting. Many of these have been waiting for 12-plus months—they were put in the premises passed category, but they are not actually active. I think the delay has caused more confusion and people thinking that they are not going to be able to sign up.

Senator SMITH: Stepping back from those pretty bad numbers—they make the GST look pretty generous!--what were the top three reasons for that? Can you point to them?

Mrs McIntyre : Certainly, the fact that WA was the last state to actually get fibre to the premises accessibility in the rollout. Given that was only in June/July last year, on the cusp of the election, I think that has added to more confusion. Also, the fact that there were public infrastructure issues with the contractors has I think also added to the problems in the slowdown of rollout in WA.

Senator SMITH: How should the new NBN Co. management team measure its success over the next 12 to 18 months—in what three or four KPIs from a retail service providers point of view? What would you be saying to the new management team?

Mr Buckingham : You have heard of our net promoter score? I would like to think that the new CEO of NBN is talking about his net promoter score in three years time, and how delighted his customers are.

Senator SMITH: So, keep a focus on the customer?

Mr Buckingham : Everything should be focused on customers.

Senator SMITH: And that is not necessarily just the retail customer, but, as a wholesale provider, the retail service provider they will be working with.

Mr Buckingham : Absolutely.

Mr Dalby : It is important for us as retail service providers to be successful in signing up new customers in order for NBN Co. to have success in terms of usage and traffic on the network. I think we probably feel that any success we have had—the 25,000 customers we have today—has been in spite of the interaction with NBN Co., not really because of the help they have given us.

Mrs McIntyre : The key metric is not premises passed; it is premises able to be signed up.

Senator SMITH: Absolutely.

Senator LUDLAM: Thank you for your evidence so far. It has been a bit of a bucket of cold water, but that is useful under the circumstances. Do you know what proportion of your customer base, nationally, is actually served by fibre to the premises? Is that an easy number to dig out or is it difficult?

Mrs McIntyre : Of iiNet's existing customers?

Senator LUDLAM: Yes.

Mrs McIntyre : It is around seven per cent.

Senator LUDLAM: You have your own hardware network as well, don't you—you are not purely a retailer?

Mr Dalby : Yes, we have a number of network technologies that we employ. We own TransACT, which operates in the ACT. In Ballarat—and Bendigo, I think—we have HFC.

Senator LUDLAM: What about here?

Mr Dalby : We have a national DSLAM network which provides ADSL2+ technology. That is linked by our own backhaul infrastructure.

Senator LUDLAM: Okay. I want to come back to some of the questions Senator Smith put to you and the answers you gave about the difficulty of providing a service. You have addressed this somewhat in your submission, in the section you have titled 'Complexity creates cost'. If you are dealing with a network where you know, with confidence, that 93 per cent of the footprint of the country you can offer a uniform set of tiered services too, presumably that makes your billing and back-office stuff a lot easier.

Mr Dalby : Yes.

Senator LUDLAM: If somebody rings iiNet and says they want to sign up—whether it is a business or a residential account—how are you going to know what kind of service you can offer them? How will you find out?

Mr Dalby : We have an environment that we call 'service qualification'—'SQ', in our jargon—that is quite a complex subsystem where we pump in an address or an existing telephone number and it will tell us what sort of services we can provide to that customer. The customer can use that in a self-service way, through our website, or they can call us and we can work through exactly the same environment, holding their hands.

Senator LUDLAM: You do a speed test on the spot?

Mr Dalby : It is not a speed test as such, but using algorithms we can guess what speed might be available. If it turns out it is an NBN fibre-to-the-home service, we have a higher level of accuracy with our estimate of speed. If it is a DSL service the algorithm works out the length of the cable route and does a bit of maths and says, 'You'll get 5 megabits per second download'.

Senator LUDLAM: Presumably, in a universal or near-universal fibre world you could probably stand down that software because you would have a much higher degree of confidence as to what you could offer.

Mr Dalby : Yes. The SQ also provides an input into the ordering system, so we would simplify it if we could, absolutely.

Senator LUDLAM: Okay. Understanding that you have kind of given a bucketing to everybody—I want to come to the cost-benefit analysis in a moment—I am still trying to get to the bottom of whether life as an ISP would be easier, and therefore easier for your customers, if you knew that you could offer the same tiers of services to everybody. Otherwise, in this new world, with extra layers of fibre-to-the-node technology, you are going to keep doing those tests before you could confidently offer anything to anybody.

Mr Dalby : It is unclear to us, really, what that environment is going to look like. We have fibre to the node deployed in the ACT, so we have some experience with that ourselves—but that is not taking the services through another network provider that we are a second party to. So there is some concern there. But I would like to pick up on the point, because it is not just about us servicing our customers; it is about us servicing businesses who want to know what their addressable market is. So if they are developing an online service or application—who knows what it might be: it might require a specific sort of bandwidth up and down—and they want to deploy that service, they will not invest in developing it if they do not know what the addressable market is.

Senator LUDLAM: How are we to find that out?

Mr Dalby : The answer is: we don't know.

Senator LUDLAM: Okay, so you should ask us that question. So the idea of a uniform retail product across the market is off the table for the time being, if we pursue this.

Mr Dalby : It appears so.

Senator LUDLAM: From a technology perspective, with a fibre connection that is end to end there seems to be an upgrade path that people are offering gigabit services and up now, so presumably the service tiers that you would be able to offer to people on a fibre connection could continue to increase, but everybody stuck on a fibre to the node is effectively capped in perpetuity. Do your engineers see an upgrade path for people on fibre to the node that could kind of struggle through with increases, or is it just stuck?

Mr Dalby : We understand that the current state of technology, science, whatever it is, tells us that copper has a much lower limit than fibre has. So whatever that lower limit is, whether it is VDSL with vectoring or some other tweaks, it is still going to be far below the performance that is available to a user on fibre direct.

Senator LUDLAM: Okay. The other myth—that's probably a leading question really, isn't it? The other conjecture that is put in this debate frequently is that we should not build an end-to-end fibre network because one day wireless is going to beat everything, so why would we put all this infrastructure into the ground? Would you care to offer a view on that point of view?

Mr Dalby : There is a fundamental difference between wireless and fibre, or even copper, for that matter, in that the terrestrial services—the copper or the fibre—provide a dedicated path for each user whereas the wireless environment is a shared service. I guess you could build smaller and smaller and smaller cells till you got to the point where each of us had our own individual cell, with exclusive access to it, or you are sharing when you use the current mobile technology.

Mr Buckingham : Are you on 4G?

Senator LUDLAM: No.

Mr Buckingham : You would notice a slowdown if you were.

Senator CONROY: So maybe Vodafone has the fastest 4G network—probably because it has got no customers!

Senator LUDLAM: One of the things that we are continually confronted with is an argument against doing anything ever because one day it is all going to be wireless anyway.

Mr Dalby : We would see wireless is an important adjunct in a mix of services that consumers will make use of and they will migrate from their home environment to their work environment via a transient mobile environment.

Senator LUDLAM: I really appreciate your commentary on the upload speeds debate and the kinds of questions that businesses are asking you. You passed comment briefly on the cost-benefit analysis, which is something I have been fairly sceptical of for years and years because it feels as though we can estimate and quantify the costs with reasonable accuracy. How do you think Professor Ergas and his colleagues should approximate the benefits if they are gauging different technology types?

Mr Dalby : I feel unqualified to comment on economic techniques—

Senator LUDLAM: There are many unqualified people having opinions, so just go ahead.

Mr Dalby : I think it comes back to my initial point when I talked about the vacuum. As hard as that language is, there seems to be no objective that Mr Ergas can point to and say, 'If we achieve that—the thing that the parliament of Australia has decided is our objective: 60,000 more jobs, or $20 billion more in exports, or whatever it might be—then that is the benefit.' He hasn't got that to look at. Instead, we have got a general feeling that there are lots of things we could do: we could do stuff in the education environment, the health environment, entertainment, whatever it might be—but they are not quantified. If we had some quantified objectives, we would say: 'We've got to do that, and we've got to do that by 2020. How are we going to get there? We'll do this with the unis, we'll do that with the primary schools and we'll build an NBN.'

Senator LUDLAM: And just come up with a number to quantify each of those things and stack them up?

Mr Dalby : You establish targets. That is how we operate in business: we establish targets for ourselves and we go after them. The enablers that we use to achieve our objective are not the main game. The main game is the objective, and we build stuff and do things and invest to achieve that objective. Then the boss says, 'You've met your objective, well done!'

Senator LUDLAM: Have you been invited to give input or feedback or provide some of these views to the consultants doing the CBA?

Mr Dalby : Yes.

Senator LUDLAM: You have?

Mr Dalby : Yes.

Senator LUDLAM: Is that material or those views public?

Mr Dalby : They were verbal. They are certainly public. The comments that I have made here today are the same comments we have been making publicly for several years.

Senator LUDLAM: But you haven't been asked to provide quantitative estimates of any of these sorts of things or methods?

Mr Dalby : No.

CHAIR: I have a follow-up question in relation to iiNet's provision of a VDSL2 service in Canberra, in my electorate and in Senator Seselja's electorate. What are your observations about the usage of that and can you explain to the committee what the prospects are for upgrading that existing VDSL2 infrastructure—I know it is being progressively upgraded at the moment—for the residents of Canberra?

Mr Dalby : We are just deploying that now. It is a new deployment. I am not too sure we have given much thought to what we are going to do next with it.

Mr Buckingham : Demand for the service is starting to come through, though.

CHAIR: There has been demand? I might place some questions on notice about the Canberra environment specifically. What are the lessons you are able to draw from for the deployment, or managing if you like, of the existing VDSL network in Canberra, the purchase of Transact, and the demand for greater bandwidth, hence presuming an underpinning of your business decision to deploy VDSL2?

Mr Dalby : We will come back to you on that.

CHAIR: Thank you.

Senator SESELJA: With that VDSL network, at the moment, what kind of speeds is that delivering to customers in Canberra?

Mr Dalby : It varies on the line length, but it is comfortably 60 or 70 megabits per second download. I am not too sure about the upload speeds. They are generally domestic customers, although we have a number of buildings that are multi-tenanted units, often office blocks, to which we are delivering VDSL.

Senator SESELJA: Roughly, how many premises are we talking about with the VDSL network in Canberra?

Mr Dalby : Good question.

Mr Buckingham : Off the top of my head, it would be about 100,000.

CHAIR: I have another general question in respect to the change in the network design as promoted by the government. What impact will that have on the existing number of points present in Australia that were identified for the NBN?

Mr Dalby : That is an excellent question, Senator, and I am not sure that I can give a specific answer except that I know it is going to be north of whatever it is today. We do not know how many suppliers we would be interfacing with. If whatever is constructed funnels through NBN Co. and then we take access to those services, it may be less than if we have to deal with TPG, PowerTel, or Aurora. They may set up their own FTTN environments, or fibre environments, for that matter. Each of those may have more than one POI, point of interconnect, and our expectation is that it would be a lot more.

Mrs McIntyre : In terms of fibre-to-the-premise points of interconnect there are currently 121 scheduled. NBN Co. have advise that that number will not change from 121 to service the fibre-to-the-premise network. In terms of the fibre-to-the-node component there are potentially up to 50,000-plus nodes that would be required throughout Australia to service fibre-to-the-node customers.

CHAIR: What information can you provide the committee about the conceptual cost of a point of interconnect and about how that may impact on the cost of a hybrid network?

Mrs McIntyre : For the existing points of interconnect the price varies dramatically depending on the location of that point of interconnect. There is one in Subiaco, which in terms of the backhaul costs is significantly less expensive, but if we look at somewhere like Cairns the backhaul is far more expensive because there are less providers and it can be 10 or 20 times the cost. It really varies.

Mr Dalby : Also it introduces the time issue that we mentioned before, where we still have not got to all 121 yet because we rely on others to provide the connections for us. We expect that the same thing would apply with the FTTN deployment where we would be in a queue of some sort and we would be dealt with in turn. We would try to get to the front of the queue wherever we could. If we could not, then we would be delayed in terms of being able to offer our services to that community. Given that there is another provider other than NBN Co. there may not be any motivation to provide a level playing field, and we could find ourselves competitively disadvantaged, I suspect.

CHAIR: Let me ask you about that: what guarantees have you received from the government, as an RSP, that you will have equal access to the new markets as they open up under the fibre-to-the-node network in the same way that all RSPs were able to market into areas that would be opened up under the NBN?

Mr Dalby : There was some variability in the fibre-to-the-home, I have to say. But I do not think that was by intent; it was just the way it worked out. We have no guarantees, because I do not think we have had that conversation.

CHAIR: Will you as a company be seeking them?

Mr Buckingham : Absolutely.

CHAIR: Senator Ludlam asked about the place of wireless in a fibre-to-the-node or fibre-to-the-premises environment. This has been an area—as Senator Ludlam said—of some contention and conjecture, but I just want to clarify your answer so you are not misquoted. In your saying that wireless will have an important place, I presume you mean on the back of having a terrestrial network that can sustain the fundamental bandwidth demands of a modern society, and then wireless is an overlay enabling mobile applications.

Mr Buckingham : Maybe I could throw a stat out that proves the point that in the last few years wireless capacity and wireless speeds have increased dramatically. Our customers are using their home connection two per cent more each month than in the last month for four years straight.

Mr Dalby : I think there will probably be some locations where wireless-only deployments make some sense—but they still depend on a fixed-line network to provide their interconnection to the rest of the world.

CHAIR: Indeed.

Senator LUDLAM: We should just put up billboards with that point.

CHAIR: It is continually misquoted in the context of the political debate, so I thought it was important to revisit that. I thank you very much for your time this morning and for your evidence. We will most likely—and I know I will be—placing some questions specifically to you on notice, and I will ask the secretariat to follow-up with you about an appropriate time for you to get back to the committee. Thank you very much.

Mr Dalby : You are welcome; thank you.