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Environment and Communications Legislation Committee
NBN Co. Ltd

NBN Co. Ltd

CHAIR: I now call officers from NBN Co. Mr Quigley, there has been a threshold issue raised by the opposition and that is whether your opening statement is in a form that could be tabled prior to your opening statement being made or at the same time—while you are doing it. Is that possible?

Mr Quigley : We do not have hard copies, but I understand that we are trying to get them. It is being emailed now, I think.

CHAIR: So you are doing your best to get that to us.

Mr Quigley : Yes.

CHAIR: That is good. Before I ask you whether you have an opening statement, which you obviously have, are you aware of correspondence to you, to me and various ministers and to the department dated 14 May 2012 from Senators Birmingham and Fisher?

Mr Quigley : I am. I received that letter through the post. I received it on Monday afternoon.

CHAIR: There is quite an extensive range of issues in it. There were issues raised about you appearing alone at the estimates hearings. Obviously, that has changed.

Mr Quigley : Yes.

CHAIR: It raised your use of substantial time for an opening statement. There was an issue—I have already raised it with the department—that was critical of the department. There were three requests made. The first was that NBN represent itself in a fashion that allows at least 50 per cent of questions from non-government senators about its operations to be answered immediately rather than taken on notice. The second was a request that, as far as practicable, you limit your opening statement to financial or operational developments. That is not something that has been asked of any other department or government business entity that appears here. That is something different in my experience. Third, ‘In order to avert situations where apparently straightforward inquiries inexplicably cannot be answered by either NBN Co. or the department, the principal lines of questioning about the NBN that the coalition intends to pursue these estimates hearings are described in appendix A.’ Again, that is something I have never experienced before. I am not saying it has not happened before. There are two appendices to the letter. Appendix A goes to a whole range of questions. The first area is metrics and rollout. The second area is risk management. The third area is liabilities and prospective outlays in 2013. The fourth area is questions about special access undertakings. Appendix B is Senator Conroy’s 3 May press release. Basically the opposition are indicating that they need answers to these questions so that they can develop their policy. Are you in a position to answer these questions? First, do you want to make an opening statement?

Mr Quigley : Yes, I would like to make an opening statement.

CHAIR: If you make an opening statement, I think that is fine. It is what other departments and business entities do. Could you then turn your mind to the specific questions that have been raised by Senator Birmingham and Senator Fisher. It is unusual to have the questions beforehand. You have them. Are you in a position to deal with them?

Mr Quigley : Yes. As I said, Chair, I did receive the questions on Monday afternoon. I have done my best to answer each and every one of the questions. I will do that after the opening statement, if you think that is best.

CHAIR: Yes, I think it is appropriate. You have had these questions for a short period of time and I think it is appropriate that you deal with them as the threshold issue. So we will go to your opening statement and then to the correspondence.

Mr Quigley : I will start with the opening statement. We are now daily gaining momentum. I occasionally see commentary in the press that says we face setbacks and delays. Most of this commentary is based on the metrics we set out in our inaugural corporate plan, which was released some 17 months ago and which was prepared barely one year after the company came into existence. So it is not surprising that the assumptions that we made in that first corporate plan have changed. They include, for example, the assumptions about when the Telstra deal would be completed; how we would implement the ACCC’s POI decision, the point of interconnect decision; how we would execute the government’s greenfield policy, which, by the way, was not finalised at the time of the corporate plan; and a number of other fundamental policy matters.

A lot of work has been done by the company between December 2010 and today. We are now in a position to finalise an updated corporate plan and submit it to the government, following board approval, by the end of May. This new corporate plan will incorporate all the policy decisions and learnings over the last 18 months. It will also, obviously, be consistent with our 12-month and three-year rollout schedules that we made public in February and March of this year.

I will now turn to our progress. You may recall that when we last met here in February we had around 5½ thousand premises connected to the NBN. Three months later we now have approximately 11,000 active connections across all three technologies. Also in that time, the total premises in area where work has commenced has risen to 318,000. At this stage, the work is predominantly design work being carried out in each FSAM, or fibre serving area module. We are doing this rollout by modules. There is understandably a lot of focus on the construction of the access network, which is where connections to end users take place. But we are also seeing progress right across other parts of the network. In particular, we are making very good progress on the deployment of our transit network. We have recently completed the first of the transit rings in Berkeley Vale in New South Wales on time and on budget. The transit rings connect fibre access node sites back to the point of interconnect. They are a vital part of the NBN. The Berkeley Vale ring runs through towns around the shores of Budgewoi Lake, including Wyong, Budgewoi, Noraville, The Entrance, Killarney Vale and Tumbi Umbi. This is the first of 178 rings that are scheduled to be built over the life of the project. A second Berkeley Vale ring is scheduled for completion by mid June this year. There are also another 19 transit rings currently under construction around Australia.

For areas outside the fibre footprint, the interim satellite service continues to be a success, both on customer uptake and on satisfaction. We now have over 7,300 active services on the interim satellite. The long-term satellite project is also progressing well and NBN Co. has announced ground stations to be constructed near Merimbula and Bourke. These are two of 10 satellite ground stations around the country. We expect to be making an announcement in the very near future on the tender outcome for the ground segment.

I am also pleased to report that our fixed wireless service is now up and running. We recently completed testing and now have 52 active connections as part of a trial in Armidale. This is a significant milestone for us because it means that for the first time all three delivery technologies—fibre, satellite and fixed wireless—are now in operation. We continue to engage local communities by informing them in advance of us lodging applications for tower locations as part of the wireless rollout.

I have outlined some of the areas where we are building momentum but, as we all know, this is a large and complex project. As I have committed to you, I will keep you updated not only on progress but also on where we face challenges. One of the difficulties we are dealing with now is the accuracy of existing address files. When you consider we are tasked with building a broadband network to serve all premises, it is understandable that we need highly accurate data on where every premise is across the nation. This impacts almost every aspect of what we do, from planning and designing the network to building it and ultimately operating it. NBN Co. receives this data from an external source, the PSMA, which has a big task in pulling together information from a number of separately managed sources such as lands departments, local government and the Electoral Commission. When we try to use the data there are a number of inconsistencies in it for our use. It is obviously a very useful dataset but it is not quite what we need to do this job. We are finding that many addresses have been duplicated, are incorrect or are missing. We have cases where many addresses are assigned to a single point, often in the centre of a street. This is particularly an issue in the case of multidwelling units, such as blocks of flats and office blocks. It could be that anything up to about 30 per cent of the details we get in those files are inaccurate. This level of data inaccuracy means we have to take more time in the design stage to clean up the data. We have also been directing our contractors to walk down every street in every FSAM in order to verify addresses. This is time consuming, costly and itself prone to error. I should say that we are not in any way criticising the PSMA data. It is a very good dataset. That is just the reality of the complexity of dealing with a database that is trying to capture every address in the country. These are issues that were not easily foreseen. We are working on more efficient methods to speed up the process, but this does all take time.

The second area of difficulty for us all is greenfields, which I did flag at the last estimates and at the last joint committee hearing on the NBN. We have also raised it in response to media questions recently. So while this is not news to you I will just take a moment, if I can, to explain it clearly. I think it is fair to say that executing on the greenfields component of the project is the most difficult aspect of the project at this point in time. One of the major challenges is to construct high-speed backhaulings to all of these new greenfield locations. On average, we have to provide about six kilometres of new fibre backhaul, often involving new ducts and trenches, from a new development site to where we can interconnect with the existing network. So from every site it is on average six kilometres to pick up the existing network. Obviously in remote sites—an extreme example of which is a place like Mount Newman—these distances are much longer. Because of these new duct civil works, we have to go through associated approvals processes. The good news is that we are overcoming the problems of doing this for the first time. As we continue to build out our transit network, which I mentioned earlier, the distances we need to span reduce. We are working closely with the developers, who clearly see the appeal of having NBN rolled out to their new estates. A number of them are using the availability of the NBN rollout to differentiate their offerings from existing homes in the suburbs. So you can be assured that we are working hard to meet the requirements of our greenfields customers. In an effort to increase our rollout capacity, we are increasingly involving our brownfields construction contractors in the greenfield builds. So we are bringing more capacity online for greenfields.

I will turn now to our product offerings. We are on course to release the first of our products for Australian businesses later this year. The first release will allow retail service providers, our customers, to supply business users with high-speed broadband and multiple line telephony capability. The product design recognises that businesses operate around the clock, so we are providing increased service levels for this market segment. Potential applications of this set of business products include e-learning and health applications, small business broadband and telephony bundles, videoconferencing, video collaboration services and multiline telephony. There will be more information about this and future business product releases as we get closer to the release dates.

I would like to now turn to the report of the Regional Telecommunications Independent Review Committee, which I understand was released yesterday. The report contained a number of recommendations relating to NBN Co. I am told that one of these recommendations relates to extending the eligibility of the interim satellite service to include schools, health clinics and local government facilities. I also understand that the minister has confirmed today that that will be the case.

To conclude, we are dealing with challenges methodically as they arise. The rollout really is now gaining momentum. I want to mention here an important data point from what we are seeing on the ground. Overall, 38 per cent of active services on our fibre network have been on the fastest speed tier, which is 100 megabits per second down and 40 megabits per second up. Only 16 per cent of the active services on our fibre network are for the entry-level speed tier of 12 megabits down and 1 megabit up. In the data for April this trend is even stronger, with almost 50 per cent of new active services being on the highest speed tier of 100 megabits. This trend is also seen in Canada, where Bell Alliance has been rolling out fibre to the home for a number of years. They recently added a new 250-megabit-per-second down and 30-megabit-per-second up speed tier to their available plans. That is because they said that 40 per cent of their users access a number of services simultaneously, creating demand for higher bandwidth.

I want to end with what I think is a clear indication that support from the Australian public for the NBN continues to grow. A recent Essential survey suggested that support for the NBN is at record levels. This survey confirms what we also see in local councils and communities—that there is widespread support for the project, independent of voting preferences.

I will now turn to the letter I received from Senators Fisher and Birmingham. Before I begin to answer the 30 questions which were in the letter, there is one particular passage which I must admit surprised me. It asks that NBN Co. represent itself at this hearing ‘in such a fashion that allows at least 50 per cent of questions from non-government senators about its operations to be answered immediately rather than taken on notice’. This did not gel with my recollection, so I asked someone to go back and check the numbers from the last committee hearing on 14 February. Our count showed that around 92 questions were asked by non-government senators. Of these, 74 were answered at the hearing. That is around 80 per cent. So I am puzzled as to why Senators Birmingham and Fisher are asking me to answer at least 50 per cent of questions at the hearing.

I read in the letter that scrutiny of the NBN at these hearings is frequently constrained by the large number of questions taken on notice. I have to tell you that I do not think that that represents reality. We do not shy away from scrutiny at all but I need to make sure, as the CEO of NBN Co., that we keep focused on the main task at hand, which is to build a network which will serve the needs of all Australians for the coming decades.

I will now move to the specifics of the letter. The first point I would like to address is my decision to appear alone. As you can see, I now have three of my direct reports here. Notwithstanding that, even if I brought the entire senior management team there will always be matters—usually very detailed factual questions—that require checking before a definitive answer can be provided. I will introduce my colleagues. We have Jim Hassel, who looks after all our regulatory product sales, account management and probably a few other things. We have our chief technology officer, Mr Gary McLaren. Gary looks after all of our network architecture and all of our design—all of the technical stuff. I have to say I think it is the first time for three years I have seen Gary in a tie. And we have Mr Kieren Cooney, who looks after all of our government relations and media and communications and general marketing. These gentlemen are with me today.

The senators also expressed concerns in the letter regarding the time taken for an opening statement. First, I view my opening statements as an opportunity to provide what I believe is a useful update for the committee as a whole. I recognise that this is not always seen by opposition senators as the best use of time. But the statement is for all members of the committee and I believe that, as part of the operations of these committees, it is an important means of placing on the Hansard record the facts about progress with the project since the previous estimates hearings so that the Australian public have the opportunity to be briefed also—so that we can get facts onto the public record. It is also a proper means to correct the record or dispel myths, and we do have some of those. I hope that these hearings provide a useful avenue for getting facts onto the table.

Second, I do not agree that it duplicates information already provided to parliament. Let me give you some examples. The rollout statistics I provide in my opening statements are the latest available. They are often as at the day of the hearing, so they certainly do not repeat information provided twice a year to the Joint Committee on the NBN, the JCNBN. I have also used these statements to flag emerging issues that have the potential to impact on the project’s schedule and cost. For example, at the February estimates I raised for the first time the challenges we experience in greenfields. At that estimates I also announced the release of our 12-month rollout schedule and provided an update on such things as a three-year rollout announcement, the number of RSPs that had signed on to the WBA and the latest pricing data. This is information that is not available publicly. I would have thought it to be of interest to the committee, the media that monitors these hearings and the Australian public. I strongly believe this is part of the proper accountability that is required of us as a government business enterprise.

The senators then requested that as far as practicable I limit the detail of my opening statement to ‘financial or operational developments, subsequent or additional information to the most recent report from the shareholder ministers to the Joint Committee on the National Broadband Network’. My understanding was that my opening statement was not constrained by any particular guidelines from the committee but was an opportunity for me to update senators on progress, both operational and financial, including matters that are not in the public domain but are of particular relevance in my accounting into the members of this committee. In the three or more hours for which I normally appear before this committee, I believe that the 15 to 20 minutes to provide this statement is time well spent. Of course I am more than happy to be guided by the chair and members of the committee on what they would prefer going forward.

The senators raised the issue of information critical for the coalition broadband policy development in your letter. Our job as a GBE is to execute the policies and directives set by the government of the day and articulated by the statement of expectations we receive from the government. We of course will do our best to answer any questions you have, but I am sure you understand that when it comes to forward forecasts that are contained in our corporate plan—which, as a GBE, we submit to the government—it is their decision as to when and how they make that information publicly available.

I will now turn to the letter itself. The first three dot points relate to forecasts in the corporate plan that we are about to submit, which will be going to the government shortly. It is up to the government to release that information as it sees fit. On the next two dot points—

CHAIR: Mr Quigley, is this in appendix A?

Mr Quigley : This is appendix A I am addressing now. I am addressing it dot point by dot point. The first three, as I said, will be in the corporate plan. On the next two points, as far as I am aware there are good estimates on households but there are no estimates from the ABS of business premises in Australia. Those data points on the number of households across Australia I do not expect to be different in our next corporate plan from what they were in the 2010 corporate plan. On point 6 on activated services, I think I addressed that in my opening statement. Point 7 on NBN Co.’s revenue for the past 12 months—that was provided in the government's report to the JCNBN provided on 9 April on page 22, which I assume senators have access to. Points 8 and 9 were also in the JCNBN on report, I think on the same page. Point 10—you asked about cumulative equity and cash burn. This is contained also in the report to the JCNBN, on page 24. Point 11 on cumulative cap ex by technology—this is also available in the report to the JCNBN, on page 20. Point 12—we do not provide costs per premises because, frankly, it would prejudice ongoing negotiations with contractors. Points 13 and 14 relate to the average revenue per user split between households and commercial premises. We do not split this out but I can tell you that as of the end of March the average revenue per user was $29.55. The next one was what proportion of Australian premises currently have various access speeds. On take-up of services by speed of service—obviously for satellite the service is 61, as you know, on the interim satellite. For fibre the take-up of 12 Mb per second download speeds is 18 per cent, for 25 Mb per second it is 35 per cent, for 50 Mb per second it is 10 per cent and for 100 Mb per second it is 30 per cent. That is the averages. As I mentioned also in April, those numbers at the high speeds are climbing up. The next six questions—

CHAIR: Mr Quigley, the take-up service by speed—can you just run through them a bit more slowly.

Mr Quigley : Yes. The 12 Mb, which is the lowest rate, 12 Mb down and 1 Mb up, is 18 per cent. The 25 Mb per second service is 35 per cent. The 50 Mb per second service is 10 per cent. The 100 Mb per second is 37 per cent. The next six points relate to the request for NBN Co. estimates related to characteristics of the general Australian broadband market. Before I answer the question I really need to clarify whether we are talking about the total overall market including mobile, including satellite, including HFC—I presume you are not including dial-up. So I wonder if I could get a clarification from the two senators what—

CHAIR: Senator Birmingham?

Senator BIRMINGHAM: I have been attempting to take notes of Mr Quigley’s comments, which, seeing as he is reading them, probably could have been tabled. Can Mr Quigley ask the question again?

Mr Quigley : The question says ‘What proportion of Australian premises does NBN estimate currently have’—and you give a range of different characteristics. It is quite difficult to answer that without knowing whether you are talking about the entire Australian broadband market including wireless, satellite or fixed line, including HFC. Do you exclude dial-up? Which parameter would you like me to address the question to?

Senator BIRMINGHAM: If you have all of the data there for all of the different parameters, let us just go with fixed line, including HFC.

Senator Conroy: Before you we go on, Senator Birmingham you made a bit of a sarcastic comment about Mr Quigley reading out his response. There are more than just senators watching this hearing at the moment so I think it is actually valuable for all of the people who are watching online at the moment to be able to hear this read out and not just see a piece of paper tabled, because they will not have access to it all. So I think it is actually important for a broader range of dissemination than just the six or seven people in the room.

Senator BIRMINGHAM: Sarcastic comments have already flowed both ways but—

Senator Conroy: I am actually making a legitimate point.

Senator BIRMINGHAM: Mr Quigley could have at least provided copies to the committee so that Mr Cameron did not have to slow Mr Quigley down while we take notes. That is all.

CHAIR: I have a clear view that we do not run estimates by the papers. It is not going to be exchanges of paper. Estimates are not like that and shouldn't be like that.

Senator BIRMINGHAM: We could have done what we did with the opening statement.

CHAIR: That will not be happening as long as I am the chair of the committee.

Mr Quigley : Can I also say that I got these questions on Monday afternoon. To be frank, I have been spending a lot of time trying to get the answers, including right up until I turned up in this building. You asked quite a number of questions about speed. Is it the advertised peak rate or the delivery rate?

Senator BIRMINGHAM: The delivery rate.

Mr Quigley : If we can narrow that down as you say, I think what I should quote is the data available from the Australian Bureau of Statistics, which is the 2010 ABS report. That was report No. 8153 from the Australian Bureau of Statistics. They estimated that the percentage of broadband lines in the 256 kb per second to less than 512 bits per second is 2.9 per cent. The 512 kb per second to less than 1.5 Mb per second is at 9.9 per cent. The 1.5 Mb per second to less than 8 Mb per second is 41.8 per cent. The 8 Mb per second to less than 24 Mb per second is 36.2 per cent, and 24 Mb per second or greater is at 9.3 per cent. The next question is ‘What proportion of each of these categories of Australian premises does NBN Co. estimate its network, broken down by satellite, fixed wireless and fibre, will have covered or passed at each of the above dates.’ I am not sure I understand that question.

Senator BIRMINGHAM: I will apologise for the fact that there is a typo, Mr Quigley and, given the lack of understanding, you can move to the next one.

Mr Quigley : It is not so much the typo—it is that I just do not understand the question.

Senator BIRMINGHAM: There are no above dates, so clearly that is a typo.

Mr Quigley : I presume the above dates are the four categories right at the top of the letter.

CHAIR: Senator Birmingham and Senator Fisher, you drafted the letter. I am sure you can clarify the situation

Senator FISHER: We just have.

CHAIR: You just said move on.

Senator BIRMINGHAM: Yes, I have said Mr Quigley can move on.

CHAIR: I am not interested in Mr Quigley moving on right at this stage.

Senator BIRMINGHAM: Then you ask him the question that you want to ask.

CHAIR: I would be interested in hearing the answer to this question and how it is supposed to be—

Senator FISHER: Then we invite him to answer with reference to the financial years at the top of the question, which I think is reasonably obvious.

Mr Quigley : The dates are obvious—I do not understand what the question means though. I am not sure what the question is asking for.

CHAIR: Can you clarify it.

Mr Quigley : I would like to answer. I just do not know what it is saying.

Senator BIRMINGHAM: Mr Quigley, you can move on. I will reread in the context of the top of that page and the question and if we want to come back to it we can come back to it.

CHAIR: The reason this was done, as I understand it, was to get answers to these questions. Hopefully you will be in a position to advise Mr Quigley of the intent of this question before we move on to other areas of the hearing tonight.

Senator IAN MACDONALD: Senator Birmingham said that he will come back to it later it in the course of the night.

CHAIR: I am just surprised that the two authors of the letter are here and we cannot get clarity, that is all.

Senator Conroy: Would you like to take that on notice?

Senator BIRMINGHAM: Let us move on.

Mr Quigley : The next section is on risk management. Obviously I cannot answer for DBCDE but I can answer for NBN Co. The first area was in risks on the satellite deal with Loral. As you know, we take risk management very seriously in the company, so I would like to give you a complete answer, since it is an important topic. We have established a risk management framework compliant with Australian and New Zealand Standards which is also compliant with ISO 31000. We do detailed risk assessments. They are an ongoing activity across the satellite program at the supplier working levels, at the project levels and at the program levels. The identification and mitigation management of major risk forms part of the regular reporting regime to senior executive management and the board of the company. The assessments of risk, both commercial and technological, along with other key criteria have been key elements in the selection of solutions suppliers and other key decisions made across the program. I will give some examples of that. The selection of Space Systems/Loral was seen as a lower risk selection given their heritage in the construction of very large—and by very large I mean greater than six tonnes—KA band satellites, including most recently the ViaSat-1 satellite and the Hughes Jupiter satellite. We do financial risk assessments. They are conducted on supplier organisations as part of the procurement due diligence process. We engaged Optus as a managed service provider for the interim and interim satellite solution because they were considered a low-risk option compared with NBN Co. attempting to quickly establish an in-house satellite operational capability with a target commercial product to market by July 2011.

CHAIR: Sorry to do this to you, but we are putting all of this on Hansard. Can I ask you to slow down a little bit, because some of the information that is coming out is at a very rapid rate.

Senator BIRMINGHAM: Was that a request from Hansard?

CHAIR: It was a request from me to help Hansard.

Senator BIRMINGHAM: I have never heard Hansard request anybody to slow down before in my five years in parliament.

CHAIR: I am asking you to slow down.

Senator FISHER: It is quite fine.

CHAIR: Thank you.

Mr Quigley : At a more detailed level, NBN Co. staff participate in subsystem risk and qualification reviews for Space Systems/Loral. Recent examples include a joint assessment of the satellite’s battery and solar panel subsystems. Key risks that our management team continues to track across the satellite program include the coordination of frequency use from NBN Co.’s preferred and ITU filed orbital locations. There was an interesting debate at the JCNBN on orbital slots.

Senator IAN MACDONALD: You are not allowed to talk about that because people watching us will not know what you are talking about, according to the minister.

Mr Quigley : We are successfully progressing further through the coordination process with other operators using similar frequencies from neighbouring orbital locations. This risk is trending low—and we rate risks in the company—so NBN Co. is on track to concluding the necessary coordination exercise well before the launch. The ability to use the uplink spectrum required for satellite operations from required ground station regions—this was originally a high risk and is now considered low as we have entered into commercial agreements with other satellite operators who currently utilise the required spectrum in the regions required. The ability to procure or lease sites for the ground stations within the preferred regions as determined by the satellite spot theme design and frequency plan—that was a higher risk at the beginning and is now trending down to low as we have announced agreements with regional councils, two of which I mentioned in my opening statement. There is of course the failure at launch risk. NBN Co. is currently analysing launch service proposals from suppliers. We look obviously at the heritage they have for heavy launch capability with satellites of similar masses to that that we expect to launch. To assist NBN Co. in the assessment of risks in the satellite area the companies I am about to mention and individuals have been engaged. All are considered experts in their respective fields. They are Telesat, a Canadian based leading global fixed satellite service operator; the Fraunhofer Institute, which is Europe's largest applied research organisation; Dr Gordon Pike, who is an ex-Optus satellite program manager and is overseeing several Optus satellite missions; and Bill Hope, who is an ex-Optus satellite executive. I would also like to mention, though—and I think this is very important—the team that NBN Co. has assembled itself—the people that we have in NBN Co. who are running the satellite project under the direction of Gary McLaren. The team itself comprises members from the local and global space markets with over 250 years experience across commercial broadband, television, digital radio, satellite and scientific and technology development programs. We have people who have experience in Optus, the Australian Defence Force, Aussat, Telstra, OTC, Intelsat, MR SAT, the European Space Agency, NASA, the United States Department of Defense, the United States National Science Foundation, the United States Oceanic Atmospheric Administration, Raytheon, Worldspace, British Aerospace, which is now EADS Astrium, Mirsat, Telespazio, Asia Broadcast Satellite, Mitech, which is now part of Codan, Aerospace Technologies of Australia, the Aeronautical Research Laboratories, and also someone from the Cassini-Huygens scientific mission to Saturn. That completes the NBN Co. answer on the risk assessment for the satellite program from our view. I am not sure if DBCDE would like to add anything to that.

Mr Harris : I am happy to say that we reviewed the risk assessment that was provided by NBN Co. Our officers particularly met on the likelihood of the allocation of slots. We were recorded in the NBN Co. analysis as supporting the concept that it was low risk to delegate slots, which was the primary issue that instituted all of this argument of the joint committee. We provided appropriate advice to government on the satellite acquisition plan.

Mr Quigley : I will now move to the next question, which was what work has NBN Co. bought commissioned or sought on change of government risks. We look to the government of the day to provide directions, so I believe this is probably best answered by the secretary of DBCDE, who I believe answered a similar question at a previous hearing.

Mr Harris : I ask for guidance from Senator Birmingham. We did discuss the SAU in some detail earlier. I am happy to discuss SAU further or defer it for subsequent questioning. It is a topic, as I identified at the time, particularly close to my heart. It is one of the things that I think will be tremendously important to reinforce the public policy aspects of this project. But we have not done an assessment of risks. It is not a risk matrix issue in my view. What we have done, as I described earlier, is spoken to all the relevant parties and provided advice about what we believe the parliament intended with this legislation. That includes the ACCC, those representatives of industry who have cared to speak to us or who we have approached on the individual issues and NBN Co. on multiple occasions. As a result of those interventions some things have changed. I will not say everything has changed according to our prescriptions, but some things have changed and we remain engaged in the process of finalisation of the SAU and will continue until it is completed.

Senator FISHER: Is Mr Harris part of your choreography, Minister?

Senator Conroy: Sorry?

Mr Harris : I am answering your question about what it says here—what assessment of risks has been undertaken on the SAU by DBCDE.

CHAIR: These are serious questions that you have put both to the department and to NBN Co. I think they are doing a fantastic job in dealing with them in a systematic way. I do not think it does you or this committee any good to take any facetious positions or anything to pick on Mr Harris that goes to his credibility. It is just unfair and unacceptable.

Mr Harris : If I answered the wrong—

Senator BIRMINGHAM: No, you answered the question directly and succinctly, Mr Harris. Thank you. That is the point Senator Fisher was making.

Senator FISHER: Exactly.

Mr Harris : Mr Quigley has also suggested that I might answer this question about the NBN Co. board commissioning or seeking advice on change of government risks. I have previously advised the joint committee on the NBN when this issue arose that in my strong judgement it is not the role of public servants to design public policy for the alternative government. All that can happen from a public servant—and Mr Quigley and I have had discussions from time to time about whether in fact he is a public servant for this purpose. Given that he runs a government business enterprise and follows the instructions of government under a statement of expectations, we expect that he will follow the requirements of public servants. We cannot design policy for the alternative government. If we were to design policies for the alternative government it would effectively be the bureaucracy choosing to determine at what point an alternative government is likely. That is an antidemocratic outcome. We cannot have a template for the public sector that says you can make a judgement that a government is about to change and design policies for that purpose.

Senator IAN MACDONALD: It is very simple. At the next election that is going to happen.

CHAIR: Mr Harris—

Mr Harris : I am happy to leave it at that.

Mr Quigley : I will now move on to the liabilities and prospective outlays in 2013. The question is what is our best estimate of the aggregate value of NBN Co. contractual liabilities and obligations. I refer the senators to page 25 of the second government report to the JCNBN of 9 April, the one I referred to before, where there is a table of unaudited schedule of commitments. When it comes to forecasts into the future that of course is the subject of the corporate plan, as I mentioned before. The next question is what are the five largest outstanding contracts projected to be. Could I ask for some clarification of just exactly what is meant by that. It was not clear to me what is being asked.

Senator BIRMINGHAM: The total value of the contract.

Mr Quigley : What do you mean by outstanding contracts?

Senator FISHER: Yet to be completed.

Senator BIRMINGHAM: At the time of 2013.

Mr Quigley : Just to be clear, you are asking me about the value of contracts that we have not finished negotiating yet.

Senator BIRMINGHAM: No—contracts that will still be live contracts, as in not completed, at 2013.

Mr Quigley : So what is—

Senator FISHER: Negotiated yet not completed—still with something to go.

Senator BIRMINGHAM: There is not a lot of imagination to that, I would have thought.

Senator Conroy: It is a year and a half away.

Senator BIRMINGHAM: Do you have contracts that go beyond 2013, Mr Quigley?

Mr Quigley : There are contracts—

Senator IAN MACDONALD: Are they signed?

Mr Quigley : They are signed but that is not—

Senator BIRMINGHAM: There are binding contracts between NBN Co. and your suppliers that stretch beyond 2013?

Mr Quigley : Yes but some of those are framed contracts. I think the government has provided in the budget papers estimates of commitments. This is quite a complex issue to do, and by the way we have to be very careful about what information we make available on these types of things if we are still under negotiations. Construction contracts, which would be among some of our largest, are subject to ongoing negotiations.

Senator BIRMINGHAM: I imagine in that sense you of course are always at liberty in these processes to reveal the information that is not commercially sensitive, to frame your answers in a manner that you believe does not reveal commercially sensitive material and to do your best endeavours, as I am sure you will, to provide as much information as you reasonably can to the committee without jeopardising NBN Co.’s commercial position.

Mr Quigley : Just to be clear, then, that that is as of 2013—the value of the five largest from that date forward that the company is committed to?

Senator BIRMINGHAM: Mr Quigley, I do not expect you to have a crystal ball—as of today, contracts that you have entered into that stretch beyond 2013 in terms of their delivery.

Mr Quigley : Okay. We will attempt to answer that one. The next three questions about estimates of fibre premises connections into the future for fibre, for satellite and for fixed wireless—they will all be included as the forward forecasts in our next corporate plan, which we will be submitting to the government by the end of May. I will move to section 4—in what circumstances can the price control on the entry-level product be waived. The initial pricing on the set of basic—that is, entry-level—products is fixed from the SAU commencement until the 30 June 2017. It can only be changed by variation of the SAU assessed by the ACCC in accordance with the legislative framework in respect of SAU variations. In any event NBN Co. has already made contractual commitments to its customers in relation to this pricing which would hold prices constant until mid 2017, even in the absence of an accepted SAU. After 30 June 2017 these products are subject to a maximum price increase of half of CPI. That applies on an annual basis with no carry-forward to subsequent years. This is not an automatic price increase. I want to stress that. Rather, should NBN Co. decide to increase any of its prices it would need to formally notify its customers under the terms of its contract with them, subject to providing appropriate notice to them. This price increase limit applies to all products offered by NBN Co. including the entry-level products. NBN Co. has already made contractual commitments to hold the price of many of these products constant for up to three years which override the commitments in the SAU and provide additional certainty to NBN Co.'s customers. NBN Co. can request ACCC approval for an exception to the CPI divided by two, or half CPI, annual increase on a case by case basis subject to satisfying criteria which require consistency with the long-term interests of end users, which is a legislative criterion, and the applicable law, regulation or ministerial determinants of government policy. The SAU as lodged also contains an antiavoidance provision to preclude NBN Co. from circumventing the individual price increase limits.

The next question is what is NBN Co.’s forecast of movements in APU for the broadband and voice over FTTP and FTTN networks in the US market over the next 10 years—what is the basis of that forecast. You have a follow-up question which—

CHAIR: Mr Quigley, I think you said the US—it says the UK here.

Mr Quigley : The first question, I think, was the US market and the second question was the UK.

CHAIR: Sorry, yes.

Mr Quigley : So you have asked about the US and UK markets. We do not forecast trends overseas. This would be a considerable exercise to study markets we do not operate in and technologies beyond those we have been asked to execute upon. But I can tell you that a research study by Diffraction Analysis done very recently—May 2012—which utilised primary interviews with a range of international operators, including amongst others KPN, Verizon, Orange, HK Broadband Network and Turksel found that when comparing fibre to the home or basement APU with DSL APU for the same players they found that in fact you get an average. When they looked at the market of fibre to the home versus DSL they found that because of the rising growth in triple-play bundles the same service purchased on a fibre to the premise when bundled was 30 per cent on average below that of separate products over DSL. The discounts were in the 10 to 50 per cent range but were on average 50 per cent. As I said, we do not do sophisticated analysis in detail of those overseas markets, as it would be a great deal of work and not something that we have been asked or tasked to do by the government. That is the conclusion.

Senator BIRMINGHAM: Would you like me to come back to that question?

CHAIR: Yes, if you want.

Senator Conroy: He has an update.

Senator BIRMINGHAM: While Mr Quigley was talking I read through the question again. I do think that as written it does make sense but I understand equally that Mr Quigley has gone through a lot of work to come up with the answers that he has given to some of the questions here, and obviously that was done in a short period of time. But to look at this last question on page one, ‘what proportion of each of these categories of Australian premises’—that is clearly a reference to the six categories dot-pointed above of Australian premises. I note in your answer Mr Quigley you gave the answer by different categories from those specified there with reference to the 2010 ABS data. So obviously if you, as I expect you will, take this on notice unless you have the information readily at your hand, I am happy for you to do it by the categories that you have chosen of the 2010 ABS data instead of the six categories here. ‘What proportion of each of these categories of Australian premises does NBN Co. estimate its network rollout, broken down by satellite, fixed wireless and fibre, will have covered or passed at each of the above dates.’ The above dates, as you correctly pointed out, are those at the top of the page—the end of each of the financial years 2011-12, 2012-13, 2013-14 and calendar year 2013. So what are we looking for there? I would have thought it was relatively straightforward. At the end of each of those years in question, broken down by each of those segments of Australian premises according to their current internet capacity, what proportion of those premises in those segments will have received satellite access, fixed wireless access or fibre access that has covered or passed them.

Mr Quigley : I understand the question. I am afraid we will not be able to answer it. The reason we will not be able to answer it is that we do not know which premises are in each of those categories from the ABS data.

Senator BIRMINGHAM: So is 2010 ABS data the best you have to go on, Mr Quigley? Is this part of what you were highlighting in your opening statement?

Mr Quigley : I think it is good to quote the Australian Bureau of Statistics data. It is not NBN Co. data; it is the Australian Bureau of Statistics. By the way, we do not have access necessarily to retail service providers’ information about speeds. The Australian Bureau of Statistics very well may have. Just to make sure you understand why it would be impossible for us to answer the question as you pose it now—what it is saying is that you take Australia and you carve it up into these categories, but these categories are premises that are scattered all over the place. They are individual premises scattered all over the place in each of these categories. So how do we know which premises they are and therefore which technology is serving them and at what speeds?

Senator FISHER: Is that because the ABS data does not drill down to individual premises; it just has numbers?

Mr Quigley : That is exactly right.

Senator BIRMINGHAM: Thank you Mr Quigley. In that sense you have answered a question. I might think about whether there is a different way to approach it—

Senator Conroy: Steve, you can come in now.

Senator BIRMINGHAM: perhaps dealing with the FSLAMs, the regions that you work with, or some other means. Mr Quigley, in a number of instances you asked questions with reference to the information provided to the joint committee on the NBN. I do note that in a number of those cases the information provided to that joint committee is simply for the period up until 31 December whereas in a number of cases we have asked for the period of time over a number of years—those years that I read out before—or indeed for the 12 months up to now. So if it is possible in a convenient time of looking over questions on notice to see whether any of that extra information could be provided that would be appreciated as well.

CHAIR: Minister, can I seek clarification here. The joint committee on the NBN has got quite a wide remit. The work of estimates is narrower than that of that joint committee on NBN. Given that NBN is now being asked questions at estimates that go even further than the joint NBN committee is seeking or receiving answers on, how do you read the relationship between the estimates committee and the joint NBN committee?

Senator Conroy: I am the only unlucky person in the room who does not attend the joint parliamentary committee so I have not had the pleasure of participating in your discussions.

Senator BIRMINGHAM: Senator Bushby is not.

Senator Conroy: Sorry, Senator Bushby has recently joined us in the room. But the usual suspects are all here.

Senator FISHER: It is just an opinion. It cannot—

CHAIR: Senator Fisher, order. I am asking Senator Conroy for a point of view.

Senator Conroy: There is actually a very defined set of rules about the questions to be asked here. We generally give a fair bit of latitude but when it comes to dealing with the issues around the corporate plan, we have a process we have agreed under the joint parliamentary committee to release information every six months. Everyone was happy with that. We will be updating the corporate plan shortly and then there will be more information supplied on a six-monthly basis to the committee. So within reason we are happy to take questions. We are very pleased finally to see some questions at estimates about the financial performance. I did want to take up a point which I did find a little gratuitous in the letter from senators Birmingham and Fisher in reference to Mr Quigley and the number of questions that he answered or did not answer. I have actually done some research as well. At the additional estimates, 13 to 16 February 2012, the coalition senators asked at the Senate estimates hearings 140 questions—

Senator IAN MACDONALD: Is this answering the question, Chair?

Senator Conroy: It is. Out of those 140 questions the number of questions asked directly on the financial performance of NBN Co. was 22. In the supplementary estimates hearing of 17 to 20 October 2011 the number of questions asked by coalition senators was 120. The number of questions asked directly related to financial performance of NBN Co. was 24. Then there was the infamous Alcatel questioning. There were 276 questions in the budget estimates of 23 May in 2011. Only 29 of those 276 questions were on the financial performance of NBN Co. At the 21 to 24 February 2011 estimates, 171 questions were asked of NBN Co. and 32 were on the financial performance. At supplementary estimates in October 2010 there were 252 questions of which only 30 were on the financial performance. So I welcome the coalition deciding to finally start asking questions on financial performance. But it is just a bit rich to accuse Mr Quigley of not providing a range of information when they have been too lazy to ask them at Senate estimates.

Senator LUDLAM: There was some information in there that was new to us. But I want to come back to this issue that was handballed to Mr Harris at the time around change of government risks. You could tell from the tones of the questions opposite—and indeed the whole premise of the letter that was put to you, Mr Quigley, is that you are facing a change of government risk as far as the coalition is concerned. This is an attempt to get a reliable dataset so that when they get into government on the red carpet as though it has been preordained they will be able to presumably break your network up and do it in an entirely different way. Forgive me if this is easily reportable or I can find this out somewhere—the whole point of having a uniform wholesale price is that some of the premises you are connecting will be paying much less than what it costs to provide the service—

Mr Quigley : That is correct.

Senator LUDLAM: and the vast majority will be paying much more than it costs to put them onto the network and thereby we smooth the price out the whole country. Is that a fair way to put that?

Mr Quigley : I will perhaps answer in a slightly more complex way, remembering that we are a wholesale provider. Our customers we are selling to are retail customers who add a margin and do what they need to do to end users. If I can look at it from our customers’ point of view—the retail service provider—it is certainly the case that if they were going to provide their own facilities to deliver a service that they can deliver on the NBN network it would cost them considerably more than the price that they are paying us. Now the differential of that—in some areas it would be a huge amount more to try to have their own servers. An example of that is clearly satellite. In some cases it would be not so much more if you were in fibre in places that are easy to get to. If you had your druthers and you could build in only new developments and only those you wanted to build in—you could ignore most of them and pick the most lucrative ones—you could probably run a reasonable business in providing fibre. But with this type of nationwide network in a country such as Australia it would be virtually impossible to get uniform wholesale pricing unless the government was doing it.

Senator LUDLAM: That is the whole premise and that is why we support it—because it is the only way to provide utility scale services, whether it be electricity, water and such. The premise is fairly well understood. What I am trying to get a sense of is this. Do you know what it costs to provide a single user in Jigalong remote Aboriginal community with satellite service, and how does that compare with plugging someone in Vic Park in central Perth?

Mr Quigley : On the fibre?

Senator LUDLAM: Yes. Just for you. Do not worry about the retailer—for company.

Mr Quigley : Yes, we would know what that cost would be. We would have to do some allocation of overhead costs, obviously, across the company.

Senator Conroy: Five times, 10 times, 20 times?

Mr Quigley : We could do that yes. It would be a multiple.

Senator LUDLAM: For the purposes of tonight—I am not trying to create homework for you or different categories of reporting or whatnot but I am trying to work out where the break-even point is. The vast majority of your customers are going to be paying slightly more than it costs you to hook them up, which is how you are going to be able to provide very expensive satellite services at a very cheap wholesale price. What I am interested to know is whether we have a sense of the ratio or the number of people you are subsidising relative to those who are doing the subsidising?

Mr Quigley : I understand the question. I think we would have to go away and do a bit of work on that and think about the end points of that. Clearly in the last 10 per cent it is unprofitable. It would be somewhere further down that curve—

Senator LUDLAM: It approaches infinity and that is why we are not cabling up the whole country.

Mr Quigley : Absolutely. It goes up very rapidly beyond 90 per cent or so—it is where the need starts to take place. So that break-even point is clearly going to be below the 90 per cent. Exactly where it sits we would have to do some modelling.

Senator LUDLAM: I know you are a busy guy so I am not going to ask for something that is down to too many decimal places. I am looking for an order of magnitude estimate. The reason I am asking this is that you have been required partly by the minister and partly by the parliament to go out and do the hard stuff first. So by the end of 2013, say there is election in September or October of next year you are a lot further down the track of providing a very expensive wireless and satellite service and you will have nowhere near the customer base in big cities to support that subsidy. Is that more or less true?

Mr Quigley : Yes. And we will have built a transit network as well.

Senator LUDLAM: We will get to that in a tick. What I am trying to work out—and I know it is not your job to do the change-of-government risks but I guess it is our role as a parliament to understand what the change-of-government risks are—is by September or October next year what is ratio going to be if everything is suddenly brought to a screaming halt? How are you going to be able to pay for the expensive services if you do not have the revenue base in the big cities? What kind of business are you going to look like?

Mr Quigley : You could not—a complete subsidy basis. You could not run a business like that. If you halt the rollout at that point you just cannot run a business. You do not have a business to run.

Senator LUDLAM: What would happen if you tried to sell it, for example?

Mr Quigley : You would not find a buyer.

Senator Conroy: You could give it away for $1.

Senator LUDLAM: It is going to be a colossal liability, isn't it?

Senator Conroy: Essentially it would transfer back onto the budget because by definition it is no longer an investment. So the entire cost would transfer back onto the budget.

Senator LUDLAM: Mr Quigley, could you provide us on the basis of what you know—and I respect that things have been delayed by the issues that you outlined in your opening statement—where we will be by the third quarter of next year with your customers who are above your break-even point as opposed to the customers who are below it. Is that a relatively easily figure to estimate this far out?

Mr Quigley : The difficulty you have is that there are no customers who are above break-even point because you have to look at the company as a whole and the company is invested in building a transit network in launching two satellites. This project only make sense on a nationwide basis. You just cannot slice it up into pieces and run a business and get a return that is above the government bond rate unless you do it all.

Senator LUDLAM: I guess that is the point I'm trying to make. You are quoted in a piece in the AFRtoday which goes to where I think you were taking us before around the transit network. You are building that and that is going to be useful infrastructure whether somebody comes along and bowls this all over or not. You will have fibre out to Newman, for example, that does not exist at the moment. Can you give us an idea of how much of your current expenditure is based on doing that backbone work on the transit network and how much is the kind of street to street work in metropolitan areas? I think when we spoke in February you still had your hands tied behind your back on the street to street work because we did not have a deal with Telstra.

Mr Quigley : Once again that would be something that I would have to go back and work on. As you would understand, the work is just starting, or has been starting now for some time. We are building up the investment in the access part and the transit network has been under way. As I said, we turned on the first ring in Berkeley Vale. We have quite a number now coming on stream relatively shortly. So that obviously ratio changes on a week by week and month by month basis. I would have to go back and look at that.

Senator LUDLAM: Maybe I should have submitted my own log of claims before we came to this session. You mentioned at the outset that some of the address data you have been given was wrong as high as 30 per cent of the time. Is that right?

Mr Quigley : In MDUs. It is not so much that people are supplying us with data they know to be wrong. It is just that this data is very difficult to gather. PSMA does the very best possible job they can of collating and what they call washing data sources from lots of places. But until you really get out on the street and walk it and check is this database correct—

Senator LUDLAM: Thirty per cent?

Mr Quigley : In MDUs yes, it is possible. It is lower—in fact it is more up around 95 per cent accuracy in SDUs—but in MDUs it is quite a difficulty for us.

Senator LUDLAM: What were your projections in your original business plan? Did you have a guess as to how accurate that data would be?

Mr Quigley : We had assumed that the address database we could get would be considerably more accurate.

Senator LUDLAM: Before I send you off on a wild goose chase, my question before when I asked you about the cost of providing the services as opposed to the revenue that you are getting per customer and you put to me that you have cost allocation issues and overheads right across the whole company—what I am asking for is an estimate of what proportion of customers will cover the marginal cost by the third quarter of next year. Does that help?

Mr Quigley : Not much. But let us take it on board and see what we can do. It could be quite a difficult question to answer.

Senator LUDLAM: I am only looking for an order of magnitude estimate as well. Anything with decimal places need not apply. The other thing that I think was very interesting in your opening statement was the rather surprising uptake on the fastest speeds here. Your revenue projections and your average revenue per user, which underpins the entire model of your company, is highly sensitive to that ratio—the people sitting on the 12:1 package as opposed to those who have shot for the moon. This is a sample of what—11,000 people or so?

Mr Quigley : If you look at the fibre it is closer to 3½ thousand or 4,000. We are talking about those ratios on speeds because on the interim satellites it is 6 Mb down and 1 Mb ups. So the speed tiers we are seeing on the fibre.

Senator LUDLAM: Let us just stick to that for the moment. So there is a 38 to 50 per cent uptake on the fastest tier and that is completely at odds with what you were estimating in the business plan, from memory.

Mr Quigley : We did not have such a high ratio. But you also need to take into account that we have early adopters on this. Perhaps Mr Hassel would like to add something to this. It is his area and he has looked at this in some detail.

Mr Hassel : We have been very greatly encouraged by the take-up at the high end of the speeds—

Senator LUDLAM: I would imagine so.

Mr Hassel : and also greatly encouraged that that has continued as well. It was the case very early on and we thought that that would be very much around early adopters but it has continued over the months, as I think Mr Quigley went through in his explanation.

Senator LUDLAM: How far at odds are those early numbers from a very small sample with the projections that you put your business plan for once the network is fully built up?

Mr Hassel : In the 2010 corporate plan our assumptions were that the 12:1 service would be something like about 53 or 54 per cent.

Senator LUDLAM: And that ended up being 18 per cent?

Mr Hassel : Yes. And our assumption was that the 100:40—the top one—would be about 8 per cent.

Senator LUDLAM: And that ended up being about 34 or 35 per cent?

Mr Hassel : About 38 per cent.

Senator LUDLAM: So it is upside down?

Mr Hassel : Yes.

Senator LUDLAM: What you think is going to happen to those numbers over time? As I said, the whole premise of the business is based on the fact that nothing like those numbers of people will end up taking up your fastest package. If they do you are running a much more lucrative business than the minister was hoping you would.

Mr Quigley : Because we have a fixed return, we lower prices faster.

Senator LUDLAM: You lower prices, or you hand money back to the government, or that just pushes your wholesale price down?

Mr Quigley : It is the subject of ACCC discussion—this is the SAU. If the SAU is accepted, we can only earn 350 basis points above the long-term running average government bond rate. Once we get above that we will just decrease prices. But I also should say, just to put a word of caution in here, when we get into the main migration of the copper onto the fibre network we expected that ratio to start shifting around a bit. What I think it would be fair to say is that we are very comfortable with the assumptions we made in our corporate plan. In other words this data is de-risking the corporate plan.

Senator LUDLAM: It is de-risking it in that you pitched a worst-case scenario that people would mostly use the slower service?

Mr Quigley : As in all corporate plans of this sort—I have never done one quite this big—I try to make sure that the company is conservative. But time will tell. We simply do not know yet.

Senator LUDLAM: I hope you are given the opportunity to find out. I really do.

Senator BIRMINGHAM: Has the board met to sign off on the corporate plan?

Mr Quigley : Not yet. That takes place next Monday.

Senator BIRMINGHAM: Next Monday. How convenient.

Mr Quigley : That is the scheduled meeting. Meetings are scheduled a year—

Senator BIRMINGHAM: Well this is our scheduled meeting too.

Senator Conroy: They sit there and they plot their meetings around your meetings, Senator Birmingham.

Senator BIRMINGHAM: It is amazing how many—

Senator Conroy: You keep on living in hope.

Senator BIRMINGHAM: It is amazing how many of the answers to question on notice we have received refer to the fact that such information will be contained in the updated corporate plan, which was due in May.

Senator Conroy: The GBE guidelines set out the end of May.

Mr Quigley : May 31 is when it is due.

Senator Conroy: It is the GB guidelines, probably put in place by your government previously.

Senator BIRMINGHAM: I would hate for anybody to be more helpful than the absolute letter of the guidelines in that regard.

CHAIR: Just to be clear on that, your board meetings are consistent with the guidelines for GBEs?

Mr Quigley : Yes, that is exactly right. The board made sure it met before the corporate plan is due so it could sign off on the corporate plan. Of course the board is not going to be seeing the plan for the first time afresh. We have been working with the board for quite some time as we develop the plan.

CHAIR: And the implication that is being put that your board meetings have been scheduled to frustrate the operation of this committee—what is your comment on that?

Senator BIRMINGHAM: I was not saying to frustrate necessarily. But it is certainly—

CHAIR: What were you saying?

Senator BIRMINGHAM: It certainly was not scheduled to assist.

CHAIR: Let us go to some serious questions.

Senator Conroy: Get over yourself, Senator Birmingham. I doubt the secretary of the board even knows the date of estimates.

Senator BIRMINGHAM: I am pretty sure Mr Quigley does, because he is always very diligent at attending, which we appreciate. Minister, how quickly will you release the corporate plan once it is provided to you?

Senator Conroy: Within a reasonable timeframe. I am not suggesting the next day but within a reasonable timeframe. I am not talking about six months. But we need to look at it and consider all of the issues raised in it.

Senator BIRMINGHAM: Mr Quigley, there are some reports in the Financial Review today—and Senator Ludlam has already referred to that article—which suggest certain changes to the business plan. Are there inaccuracies in this article?

Mr Quigley : I am not sure I recall it. What is it saying, Senator?

Senator BIRMINGHAM: Will the business plan submit to government and new timetable for connections?

Mr Quigley : As I said, it will be consistent with the 12-month and three-year plan that we announced in February/March.

Senator BIRMINGHAM: It will be consistent with those 12-month and three-year plans but obviously it will change the timetable for connections in the longer term—is that the case? The business plan will presumably cover more than just 12 months or three years.

Senator Conroy: It will reflect the changed starting date.

Senator BIRMINGHAM: It will reflect the changed starting date in terms of—

Senator Conroy: As in the Telstra deal taking eight to nine months longer than we anticipated at the time.

Senator BIRMINGHAM: So we will see delays in terms of what was suggested in the original corporate plan.

Senator Conroy: If the starting date has changed it is not a delay. The corporate plan was a prediction—

Senator BIRMINGHAM: The dates of delivery will be later than they were in the first corporate plan, if we want to play with the language.

Senator Conroy: That is a more accurate way to describe it but the corporate plan reflected a view that the Telstra deal would be signed by X date. It was signed by Y date. So all of the assumptions that flowed from the signing of X date move back to beginning from Y date. So the way you described it the second time around would be a more accurate description.

Senator BIRMINGHAM: Right. I am sure Mr Quigley will correct it as we go if the descriptions are incorrect if you do not, Minister. So the dates will be later than the original plan. In terms of the number of premises covered by particular dates, allowing for that slippage in the Telstra agreement, are they all expected to still be met?

Senator Conroy: There are assumptions there that—probably not you, to be fair, but other members of the coalition have tried to play games with. For instance there is the assumption in the plan in the moment that NBN will be doing all of the fibre to the greenfields, whereas a whole range—35,000 I think has now been discussed widely—was handed back to Telstra. So there will be a reflection in the number of connections based on the fact that NBN Co. no longer has responsibility following the agreement for a range of connections. So there will not be apples and apples in a way—

Senator BIRMINGHAM: So there will be some changes to the timelines associated with the delayed completion of the Telstra deal. There will be some reductions in connections of premises connected with the slower start to greenfields connections by NBN—

Senator Conroy: Not slower start—it is a transfer of responsibility.

Senator BIRMINGHAM: Beyond those two factors and the impacts of those two factors will there be any other delays compared with the earlier corporate plan in terms of the number of premises delivered within a certain time?

Mr Quigley : I think the best way to look at it is if you look at the 12-month and three-year plan that we announced publicly in February/March they, as I think I said at the last JCNBN meeting, that is the best source of data—not going back to a plan that was created barely a year after the company was in existence and now some 18 months ago. So if you look at that 12-month and three-year plan that is the best source of data.

Senator Conroy: So 758,000 homes will be started or completed by—

Mr Quigley : the end of this calendar year.

Senator Conroy: and 3.5 million will have been completed or started by—

Mr Quigley : June 2015. Then you would assume, which is contained in the corporate plan, that the company will be doing its best to try to recover some of the shift in the start date in the end date, as you would in such a project.

Senator BIRMINGHAM: So if you want us to compare with those 12-month and three-year plans instead of the original corporate plan, enlighten me—because right now I cannot memorise what was in one versus what was in the other. Aside from the fact factors of greenfields change and the Telstra change was there any slippage from the original corporate plan or change from the original corporate plan to those 12-month and three-year plans?

Mr Quigley : Yes, of course there was a change. In the original corporate plan we had assumed that—

Senator BIRMINGHAM: I am saying aside from the Telstra—

Senator Conroy: They are fairly dramatic changes. The assumption that underpinned this was competition with Telstra and building our own network. The assumption after the Telstra deal—not just the ramp-up phase but the actual assumption change that we were—

Senator BIRMINGHAM: Then let me go back. Is there any other factor that is slowing down the delivery of the NBN service past premises aside from the hand-back of greenfield sites and the delay with Telstra—

Senator Conroy: It is not just a hand-back of greenfield sites. The government changed the policy on greenfields.

Senator BIRMINGHAM: Whichever—

Senator Conroy: and completely renegotiated with Telstra.

Senator BIRMINGHAM: I am sure we can come to greenfield sites during the night. Is there anything else that will cause or has caused a reduction in the speed of—

Mr Quigley : At the time we submitted the December 2010 corporate plan—I think Mr McLaren can probably help me out on this one. Gary, how long was it since we had been advised of the shift from 14 points of interconnect to 121?

Mr McLaren : My recollection is that we had knowledge of the shift for approximately four or five weeks.

Mr Quigley : That meant we had to make our very best estimate of at the time of submitting the plan of what the implication of that would be. Frankly we underestimated the magnitude of the work that we had to do to re-architect the network. It turned out to be quite an undertaking.

Senator Conroy: But the targets have been set out there for a number of months, Senator Birmingham.

Senator BIRMINGHAM: I will come to another matter in the AFR story. Will there be any increase in the capital requirements of NBN Co. from government?

Mr Quigley : Our projections for the cap ex requirements of the plan will be contained in our corporate plan. It would not be appropriate for me to signal those ahead of submitting them—first putting them to the board and then submitting them to the government.

Senator Conroy: The Optus deal, if approved, brings a pull-foreword of activities—more connections get make quicker. So there is a logical situation where the Optus deal has an impact—again, at the time there was no Optus deal. So if the Optus deal is approved, and that is still in the balance with the ACCC, there is a potential impact there.

Senator BIRMINGHAM: That would just be a timing impact?

Senator Conroy: It is a pull-through but inside the first seven or eight years, by definition, because you are pulling stuff in, it goes up. The total does not change. There is a range of things that happen faster that are pulled through ,which means that in the early years before the company was raising its own capital, which is after, I think, eight years—but I stand to be corrected—there is some pull-forward because of the Optus deal. That is a revenue-positive deal for the company because they get more connections faster but it also means that they need to spend a bit more a bit faster. Does that make sense?

Senator BIRMINGHAM: Yes, that makes sense.

Senator Conroy: The Optus deal has an impact but it has not been approved.

Senator BIRMINGHAM: But aside from that timing impact to the capital injections to the company the figure that you widely state, Minister, I think is $36 billion—is that your figure?

Senator Conroy: No, I am talking about something slightly different to what you are talking about. My apologies—peak equity from the government contribution inside the envelope. I am saying there was a shift inside the envelope. I would not want to predict yet. There are a number of assumptions that the board still has not finalised yet that will have an impact—I am just not in a position to second-guess where the corporate plan is going to be. There is a range of different factors.

Senator BIRMINGHAM: I certainly understand on this point potentially Mr Quigley’s reticence but, Minister, your reticence is noteworthy. If you are not committing that $36 billion—

Senator Conroy: The Optus deal brings forward or increases the cap ex as well, potentially. The Optus deal has three or four different effects—peak equity effect, internal rate of return effect, which is positive, the operating ex and the cap ex. The Optus deal has an impact on three or four variables if it is approved.

Senator BIRMINGHAM: Why does the Optus deal increase the overall capital requirement?

Mr Quigley : Because in the original 2010 corporate plan we did not assume that there was an Optus deal done, which meant the HFC network would continue.

Senator Conroy: Four per cent of customers remain with Optus, whereas four per cent come on, so it is four per cent extra customers, so connecting more—

Senator BIRMINGHAM: Perhaps if just one of you could answer the question.

Mr Quigley : You have additional connection cap ex. While fibre may be passing down the road we did not assume that we would be dropping a fibre, either a duct or aerially, into each one of those premises that are served by the Optus HFC. If the deal is approved and goes ahead then obviously there is additional cap ex doing so. But there is also different additional revenue.

Senator BIRMINGHAM: What had you assumed for those households passed by Optus?

Senator Conroy: We talked about having 96 per cent of the fixed line, I think we said, and the four per cent that we that we would not have was the Optus HFC. So we end up with effectively 100 per cent. So, as Mr Quigley said, we are actually physically connecting more homes, which was not in the original plan, because we did not write in an Optus deal.

Senator BIRMINGHAM: We also end up with more duplication of fibre or cable going down the same street.

Senator Conroy: No, the Optus deal means that they are actually decommissioning or taking down the cable—literally physically taking it down. So there is no duplication.

Senator BIRMINGHAM: Fine—we end up retiring a functional, valuable asset before its lifespan is up.

Senator Conroy: Optus are quite happy to support the deal as well.

Senator BIRMINGHAM: I am sure Optus are, because they are getting significant payment.

Senator IAN MACDONALD: When there is money everybody is happy.

Senator BIRMINGHAM: That is right. Assuming the Optus deal goes through, the $36 billion figure will be higher?

Senator Conroy: Marginally, yes. I am not talking $4 billion or anything, if that is what you are worried about.

Senator BIRMINGHAM: Are there any other factors that would result in a higher overall capital?

Mr Quigley : We know a lot more now, obviously. Between a plan that was done in December 2010 and today there have been shifts in a whole range of areas. They are all being integrated and brought together in a revised business case and put before the government. It would be frankly more than coincidence—it would be miraculous—if all the numbers turned out to be the same as what was projected 18 months ago.

Senator WILLIAMS: It would be, yes.

Senator Conroy: That is why Mr Quigley is making that commonsense statement, Senator Williams.

Senator BIRMINGHAM: From Mr Quigley’s commonsense statement, does that mean that NBN Co. is certainly leaving open the possibility of putting to the minister in its corporate plan the need for capital injections from the government above and beyond the $36 billion and above and beyond—

Senator Conroy: No, capital injections are the $27 billion. Total cap ex bill is the $36.9 billion.

Senator BIRMINGHAM: Okay—above and beyond the $27 billion and above and beyond whatever extra is needed for the Optus deal?

Senator Conroy: No. Not deliberately but I think you have just double counted a couple of things there. Things are going up and down but the single factor that is different is that there was no Optus deal. So the Optus deal affects three or four of the variables. Then inside the overall plan is a range of going up and down in all directions.

Senator BIRMINGHAM: To put it in blunt terms, the Optus deal means that the government is going to have to give more money to NBN?

Senator Conroy: It is as a timing effect.

Senator BIRMINGHAM: That is not what you said before.

Senator Conroy: The total dollars are greater for government because the company is going to connect customers sooner. They also then collect the revenue sooner. So that is why I say it is a timing issue. Ultimately we still would got the customers but we are getting them with certainty earlier. And because we are getting them with certainty earlier in the build therefore the government’s equity contribution before NBN Co. started raising the funds themselves means that comes forward a bit, which means that it goes up a bit. I am actually trying to be helpful.

Senator BIRMINGHAM: Yes. I think that that is what you said before and I appreciated that, but then you went to some lengths to explain to me also that the Optus deal meant—

Senator Conroy: There are two different bits that get hit. I am just trying to make sure for clarity that we do not mix up two different things.

Senator BIRMINGHAM: Is the price of build of the NBN potentially going to increase under the new corporate plan beyond any costs associated with the Optus deal?

Mr Quigley : I do not think it is appropriate to me to foreshadow the new corporate plan before it has been put to the board and submitted to government.

Senator Conroy: The corporate plan will be available relatively soon and you can make your own call and judgment on that.

Senator BIRMINGHAM: Minister, I would have thought it was a fairly core thing that you would be keen to at least ringfence in terms of the overall price of the project.

Senator Conroy: The corporate plan is not far away.

Senator BIRMINGHAM: So you will not provide any guarantees yourself—

Senator Conroy: I am not going to let you put words in my mouth. I am simply saying, as Mr Quigley has said, that the board meets on Monday, the corporate plan will be delivered to the government shortly after that and we will release the corporate plan shortly after that.

Senator BIRMINGHAM: Mr Quigley, you highlighted on one of the issues we canvassed that NBN Co. underestimated the work required in regard to the increased number of points of interconnect in your original plan. In your opening statement you talked about the problem with the data regarding premises and said that these issues could not have been easily foreseen. You also, in regard to the greenfields sites, highlighted the length of new fibre backhaul required to get there, which again is something that presumably you did not foresee in regard to that responsibility either. These seem to be several areas of fairly fundamental issues of not foreseeing potential higher cost variables for NBN.

Mr Quigley : We in fact thought there were great benefits to retail service providers of having 14 points of interconnect because it would lower the wholesale input costs for retailers, which is why we were arguing for them. But we of course live by the umpire’s decision. What I did not want to do was overestimate those costs, as you would understand. I did not want to be seen to be arguing the case that everybody knew we were arguing for by over inflating it. So we tried to be cautious. As it turned out the points of interconnect—121 points of interconnect—were quite expensive to implement. It is not a question of us underestimating our own design. We were given a decision just some weeks before we had to submit the corporate plan. We did our best estimate. If we had our druthers of course we would have paused for six months, re-architected—

Senator Conroy: I think the parliament demanded the release of a corporate plan, so it had to be done. You do remember voting for that, don’t you—demanding the release?

Senator BIRMINGHAM: Sure.

Mr Quigley : In terms of the big things that I can say we got right, I think the really important things were in terms of pricing product structure architecture—all of those things. As you probably well remember, there were people early on assuming that the retail prices were going to be astronomical. They are in fact more than competitive with current ADSL prices.

Senator BIRMINGHAM: And in regard to the problems of accuracy of data on premises, was any risk assessment put into that? I think Senator Ludlam touched on that before. Did you factor in any risk of not having accurate data for premises and getting to the point of having to have contractors walk up and down every street to verify addresses?

Mr Quigley : We certainly allowed in the contingencies for the plan as we put in the original one that there would be unknowns. That is what contingencies are for. We were certain there would be things that would arise which we had not foreseen, which is inevitable in any project of this sort, particularly one in which you are breaking new ground and in which the industry is being restructured simultaneously. So, yes, it is an area it would have been nice to identify but it is not one that we did identify early on. We did identify a lot of issues which have subsequently come to pass. The issues with the addressing was not an area that we did foresee. We expected it not to be completely accurate; we just did not expect it to be as inaccurate as it has turned out to be.

Senator BIRMINGHAM: Do you genuinely have contractors walking up and down every street in a FSAM to verify the addresses before you commence your construction there?

Mr Quigley : Yes. We do not expect that to continue but that is what we are doing in some of the earlier ones. We are very rapidly putting in place automated processes using additional databases and finding different ways of doing things. So we are investing more in IT systems that will compensate and automate some of these processes that we now have to do manually, which is not surprising at the beginning of a project such as this. You have to do some things manually which in time you can automate.

Senator BIRMINGHAM: How many FSAMs have you had to walk up and down the streets for and how many premises does that roughly add up to?

Mr Quigley : Each FSAM is somewhere between, on average 2,500 to 2,000 premises—in that range generally. We have done designs now of over FSAMS. So we need to get that addressing data right.

Senator Conroy: How many FSAMS will there be overall?

Mr Quigley : There will be just under 4,000. I think the number is 3,959 but Mr McLaren can probably correct me on that one.

Senator BIRMINGHAM: So somebody has walked the streets of all 100 FSAMs to date?

Mr Quigley : It is not quite that simple, again. Some FSAMs have more of an issue than others so we make a judgment on that. But we expect that this will be a temporary situation which we will correct over time. As I said, with all of these big projects you hit these issues, you knock them over and you move on. That is what the ramp up is. That is what we are doing the moment—ramping up.

Senator BIRMINGHAM: Your current projections are—correct me if I am wrong—for around $27 billion or $27½ billion dollars in government equity.

Senator Conroy: We just talked about that before.

Senator BIRMINGHAM: I am fairly confident that that figure is right because it is the figure you gave to me, Minister. And $14 billion in equity that NBN Co. will fund through debt—

Mr Quigley : No, it is debt, not equity.

Senator BIRMINGHAM: Sorry—$14 billion in funds that NBN Co. will raise through debt.

Senator Conroy: With the Optus deal being a variable there.

Senator BIRMINGHAM: With the Optus deal being a variable that we will find out about in the corporate plan plus any other variables that have not been revealed tonight, or anything else.

Senator Conroy: We will find out when the ACCC approves it.

Senator BIRMINGHAM: That raises an interesting question. Does the corporate plan assume the Optus deal goes through?

Mr Quigley : Which corporate plan?

Senator BIRMINGHAM: The corporate plan that you are currently finishing.

Mr Quigley : I would not make statements at this point in time until we put the corporate plan to the board and through the government. I really am not in a position to reveal details of that corporate plan.

Senator Conroy: Nice try, though.

Senator BIRMINGHAM: That was really not attempting to be tricky; that was a fairly genuine—

Senator Conroy: If we get lucky the ACCC may have made a decision.

Senator BIRMINGHAM: But on the corporate plan you have at present, which is the 2010 corporate plan, the expectation is to raise debt of $14 billion?

Mr Quigley : Approximately.

Senator BIRMINGHAM: I do not want to ask this question in the context of the new corporate plan but have there been any updates that you can give us to that debt figure in NBN Co’s internal working plans to date.

Mr Quigley : No, other than to go through the same process that we did last time. Any assumptions about debt raising we check with the appropriate experts in debt markets to say, ‘Given these assumptions, does this look like a reasonable and safe assumption to make?’ We are going through that process, as you would expect us to. The timing of the debt raising is probably a little different from the December 2010 plan because the timing has changed.

Senator BIRMINGHAM: The timing of spending has changed and the timing of equity has changed.

Mr Quigley : But that the fundamentals of raising debt on a project such as this, especially with the Telstra deal done—we anticipate that there would be considerable interest in debt markets in this project.

Senator BIRMINGHAM: What interest do you expect to have to pay on that debt?

Mr Quigley : That is a number that I think, once again, would be contained in the corporate plan but we are not making any assumptions that there is an explicit government guarantee on the debt that we would have to raise.

Senator BIRMINGHAM: So your assumptions therefore are that it is entirely a commercial arrangement without a government guarantee?

Mr Quigley : Yes.

Senator BIRMINGHAM: On the 2010 model, what is the interest or cost of the debt?

Mr Quigley : I cannot remember what the interest rate was on the 2010 plan.

Senator Conroy: We can grab it for you and let you know; otherwise we will take it on notice.

Senator BIRMINGHAM: Let us know if you can as we go. Mr Quigley, would it have been preferable for NBN Co. not to have to pick up under the legislation passed and arrangements put in place greenfield sites as you have as quickly as you have had to and incurred the problems you appear to have had?

Mr Quigley : We do not really concern ourselves with preferences. We execute on the direction given to us by government. We express a view, as we did for example on the points of interconnect, and whatever the government instructs us to do we go and execute.

Senator BIRMINGHAM: How many greenfield sites are currently awaiting connection?

Mr Quigley : We have quite a number of greenfield sites now. I would have to look up the total number—I probably have it here—that are under construction at the moment. Senator, because you are obviously interested in greenfields, as you said you wanted to return to this, it is probably worthwhile if I just explain the process. NBN Co. is dealing with those greenfield sites that are above 100 premises that have what is called stage five approval after 1 January 1 2011. It is for those sites that are above 100 premises over a three-year period. They can be anywhere at all in the country. We get applications that come in from developers that say ‘We want to build a greenfield site.’ It could be a multidwelling unit or it could be an estate. It could be in phases. They give us the timing for when they believe lots will need to be passed. That could stretch out. That could be stretching from six months right out to 5 years. So if you look at the total number of lots that we have in our order book you have to look at the timing of that. Also when a new development is built we have on average 45 lots per greenfields development, but it could well be that when the first service has to be turned on in that greenfield site there may only be one house or two houses or three houses. So there has been a fair bit of misinformation, by the way, promulgated—

Senator Conroy: Like Mr Turnbull’s press release on 17 May which claimed that there were 109,988 premises in greenfield estates on the NBN waiting list. That would be the definition of completely misleading. The figure refers to the total number of lots registered, not completed homes.

Mr Quigley : And they might not even be started for a couple of years, because the developer has dislodged a plan. So this suggestion that hundreds of thousands of lots are awaiting connection is a nonsense.

Senator Conroy: It is an empty lot—no house.

Mr Quigley : They are not even done.

Senator BIRMINGHAM: Give us the data in a format that sets all this straight, then.

Mr Quigley : We have just under 130,000 lots that are in the developer’s request, that they have registered. They could be spread over a very long period of time. In terms of location it is a little under 2,500 locations—so 2,500 different sites. With the lots, we have 5,500 where we have built all of the infrastructure in the site. That could be either an MDU or an estate full of single homes. Then we put what is called a temporary FAN site on it. So we are building 1,000 FANs as part of the transit network. But these sites are often remote and there is no FAN there, so we put a temporary FAN which is cabinetised—it is in a cabinet. We put it out and connect it up and turn on the services. As of the last week or so a bit over 300 services have been turned on—activated—in greenfield areas. That is active services and there are probably three or four times that quantity of lots that have been passed where services can now be turned on. And that is growing very rapidly now. So we are really starting to ramp up. This was not an easy job to do. We understood the government’s aim of not putting copper into some of these new estates anymore. So we are operating as fast as we possibly can to get on top of this.

Senator FISHER: Didn’t the Mackenzie report recommend that you not do greenfields?

Mr Quigley : I do not recall.

Senator Conroy: I do not think it did. We will see what we can find out for you. I am sure someone has a copy.

Mr Quigley : There is just one other point I want to make, because there is misinformation floating around on this. It was stated that Telstra had done 35,000 premises over the same period that we had managed to do a lot less. That 35,000 premises is a result of stuff that they would have had, including the bow wave that the senator talked about being transferred back to them—but they could have been in the hopper, so to speak, for the five years. Telstra also has responsibility for doing those below 100, which means that they can be done in what are called brownfields infill, in which a house has been demolished and two houses are built, which means the copper network is right there.

Senator BIRMINGHAM: Ignoring the second part of that fact—I do not want to spend too much time on the Telstra comparison—with the 35,000 figure, if you take out the brownfields infill component, when you say the rest of it is stuff that could have been in the pipeline—

Mr Quigley : Yes, for a long time—literally years.

Senator BIRMINGHAM: You have work that is in the pipeline now for several years in advance?

Mr Quigley : Correct.

Senator BIRMINGHAM: Nonetheless it was work actually delivered in that 12-month period?

Mr Quigley : No, it could have been worked on for some years now.

Senator BIRMINGHAM: What are you saying?

Mr Quigley : Remember that the pit and pipe that is done in the development could very well have been done several years ago.

Senator BIRMINGHAM: So are you saying that it is just a connection figure?

Mr Quigley : Yes, it is a connection site.

Senator BIRMINGHAM: To go to your 130,000 lots that are registered, how many of those are for building works that are either requiring work today or requiring work sometime this year, or whatever variant of that type of profile you can give us?

Senator Conroy: You are asking us to predict the property market and how quickly—

Senator BIRMINGHAM: No. Mr Quigley says they are registering for a period of time or indicating when they will be done by.

Mr Quigley : I understand the question. It is probably around one-tenth or less of that. I would expect that by the end of June it would be in the 10,000 to 15,000 lots that you would expect to have come through by that time—be required.

Senator BIRMINGHAM: Is there an optimal time in the build for NBN Co. to be doing its share of the work? Is it only when the house is basically built or is there an optimal time for a greenfield site for the developer, in terms of minimising costs, to have NBN Co. step in and do its bit?

Senator Conroy: But individuals build their houses at different times. People can buy a lot of land on a new housing estate and not build on it for years.

Senator BIRMINGHAM: In terms of the preparation of the development site—

Mr Quigley : We tend to work with developers. When they lodge an application they give us their design of the lot and they tell us where they are expecting to reticulate certain services, when they will have trenches open and where those trenches will be. We work with them in the design to say when you are doing this, this is where you should lay the ducts for the fibre, which we put in; this is where we are going to put what is called a fibre distribution hub, a little cabinet, or the main TFAN cabinet. So we work closely with developers in the design process from the point at which it is appropriate following the application.

Senator Conroy: But ultimately a locked door depends on when the actual owner of the home decides they want to—some can take three months or six months and some can take years before they decide to finish and say they want it. So it is not actually in the hands of the developer themselves.

Senator BIRMINGHAM: Of the 2,500 locations in question, how many do not have backhaul accessibility, in terms of the issue you have raised.

Mr Quigley : I would say almost all of them would not have that last piece of fibre that goes from the new development site back into the network if they are estates. If they are multiple dwelling units it depends on where they are. For example if they are in a suburban area and somebody bulldozes half a dozen houses and puts up a multidwelling unit then clearly you can connect into the network relatively easily.

Senator BIRMINGHAM: But for the vast majority you would expect it would still be within the average you have encountered to date of six kilometres backhaul requirement?

Mr Quigley : That six kilometres is the average distance, given that some can be very short and others very long.

Senator BIRMINGHAM: In terms of the claims that some of the private sector providers have made about the speed with which they can connect premises with fibre—

Senator Conroy: I thought we could would crush all competition and there would not be any other providers. I remember you saying that specifically on the floor of parliament. Apparently a few might have survived. Is that what you are telling us?

Senator BIRMINGHAM: Thank you, Ministers, for the interjection.

Senator Conroy: That is what you said though.

Senator BIRMINGHAM: Thank you. They seem to claim that they can manage to deliver at a faster rate greater numbers. You have explained—

Senator Conroy: It is a competitive business.

Senator BIRMINGHAM: the Telstra numbers that have been cited, Mr Quigley, but in other cases do you not see any instances of private developers potentially being able to do the job in a cheaper, faster way than NBN Co? Are developers opting for any private developers such as you have found?

Senator Conroy: It is called competition. You said there would not be any. Your hysterical claims on the floor of parliament you are now contradicting yourself by saying, ‘Mr Quigley, there are companies out there doing it faster and better than ever.’

Senator BIRMINGHAM: Let us let Mr Quigley give us the evidence then, if that is the case. Are there companies doing it faster, Mr Quigley?

Mr Quigley : Yes, there are some small companies who are doing some new developments. Developers are going to them. Obviously developers have the right to do that. What I can say is that the vast majority of developers are coming to us to have their greenfield built. I have to also say that we are a little envious of some of the small developers because they get to choose which developments they can do and which ones they can ignore. They pick and choose which ones they can do, so they do the nice, profitable, easy ones.

CHAIR: I think that is an appropriate time to break.

Proceedings suspended from 21 : 01 to 21 : 16

CHAIR: We will resume.

Mr Harris : I just want to clarify an answer I gave to Senator Fisher earlier about the implementation study and its dealings with greenfields. I think that Senator Fisher was closer to being correct than I first imagined―

Senator Conroy: That is such a sad statement.

CHAIR: I am glad she is not here.

Mr Harris : The implementation study did actually indicate that, although new premises were in what it believed to be the NBN Co’s rollout remit and responsibility, it recommended in fact that new premises only be addressed by NBN Co in the course of its rollout, whereas what we subsequently negotiated with Telstra was an arrangement where NBN Co picked up responsibility prior to its rollout, which was the issue that Mr Quigley has been discussing in some detail.

CHAIR: Thank you.

Senator WILLIAMS: On that very subject, I want to refer you to an article in the Gladstone Observer on 11 May 2012 which claims that businesses in the new Kirkwood Road shopping centre had to open without landline or internet connections. An NBN spokesman said that the properties were the responsibility of Telstra to fix. Why wouldn’t NBN be making these greenfields connections given that it is rolling out a new fibre network?

Senator Conroy: Were you listening to any of the previous discussion?

Senator WILLIAMS: No, I have been at other things, and just come in.

Mr Harris : The arrangement between the government and Telstra has varied since it was originally established, but the bottom line is that NBN Co takes on responsibility for large-scale greenfields developments and Telstra has taken on responsibility for small-scale.

Senator WILLIAMS: So it all depends on the scale of it?

Senator Conroy: It depends on the scale. In the small ones which can be dotted around everywhere, where it is not possible to connect into the NBN network, we put copper in and then when we come to do the suburb we take the copper out, as we do with every other house in the suburb and we put the fibre in.

Mr Harris : I might say on Telstra's behalf that it is quite surprising to me when the report says that it had no internet or phone access, because I think Telstra has been quite assiduous at following up that particular aspect of the business. I do not know the circumstances―

Senator Conroy: It is mandatory to offer wireless services, so I would be beyond shocked if Telstra had not offered a wireless service.

Senator WILLIAMS: So it depends on the size of the greenfields development―

Senator Conroy: Yes, 100 plus is us.

Mr Harris : As to whose responsibility it is.

Senator Conroy: That is from 1 January last year. As has been the debate, and you would not have been following it as closely as others, there are a whole range of homes that were started, say, four years ago that have been completed in the last 12 months that are not NBN’s responsibility. They are Telstra’s. We call it the bow wave. You could call it overhang. But there was an existing stock of homes that are coming through at the moment that are Telstra’s responsibility. And they can be above 100. As a rough rule of thumb, as of 1 January last year, above 100 is us and below 100 is Telstra. If you are on 100 then you are really in trouble.

Senator WILLIAMS: As to those ones that Telstra is responsible for, when will these businesses in Gladstone be transferred from Telstra to the NBN under the agreed leasing arrangements with Telstra?

Mr Harris : If they are of a small scale, it will be at the point in time that NBN Co passes those premises as part of its rollout.

Senator Conroy: So whenever we do that suburb of Gladstone in our national rollout―if it is in the three-year rollout or after the three-year rollout―it will be replaced then.

Senator WILLIAMS: You do not have any idea when that Gladstone rollout is? Gladstone, Queensland, that is―not South Australia.

Mr Harris : We will see if we can find out during the course of the evening.

Senator WILLIAMS: Thank you. Why does there remain confusion over whether Telstra or NBN are responsible for connecting new premises? Up until now, small greenfields are Telstra’s responsibility and large ones are NBN―okay?

Senator Conroy: Yes, 100.

Senator WILLIAMS: When does that change over where it is all going to be NBN and NBN is going to do the small ones as well?

Mr Quigley : Whenever we build an FSAM, if there are any new, small ones, we take responsibility as we roll out.

Senator WILLIAMS: Inevitably many residents contact federal electorate offices with concerns or questions regarding NBN and such officers have difficulty in obtaining information required to satisfy these concerns. Is NBN Co doing everything within its power to ensure that relevant stakeholders have sufficient access to information about the rollout with specific references to areas that are not due to be connected for several years?

Mr Cooney : Yes, we are looking at engaging the local community in a couple of different ways. We have a team that works with local governments and local institutions, universities and so forth. One of the things we often do is provide or run community information sessions. Over the last 12 months we have engaged over 150 councils. We have run around 20 community information sessions and on average we have had about 200 people at each of those community sessions. The other thing we do is that we proactively reach out to the councils and the local communities in the areas where we are going to to ensure that they know that we are coming, they know who they can contact and they can ask any questions.

Senator WILLIAMS: Where could someone like me get access to this information when people come to my office and ask what is going on? Where can I get this information for them? Do I have to contact NBN or what can I do? Do you have some webpage where what you have just talked about is listed out?

Mr Cooney : It depends on the question. One of the most common questions that we get asked from members of the community is, ‘When will the NBN be available to me?’ You will see on our website that question is answered front and centre―people can enter in their home address and the suburb and a postcode, and it will let them know if they are in that three-year rollout and whereabouts that is.

Senator Conroy: Just to update you on Gladstone, I am just on the website as we speak. I have entered in ‘Gladstone’. I do not think it is part of the three-year rollout. But we do have one housing estate where there is work underway, so it must be above 100. But from the sound of it, it does not sound like that particular housing estate is where your constituent has asked about.

Senator WILLIAMS: Minister, just with the Daruka issue out of Tamworth, there has been some controversy over the last six or eight months there over the towers and where they are going to go. How is that all panning out?

Senator Conroy: As you know, Mr Windsor conducted a survey which people responded to. A reasonable majority were supportive. I might pass to―

Mr Quigley : Gary McLaren is responsible for the wireless project, so he can explain what is going on in Daruka.

Mr McLaren : In Daruka, as was just mentioned, there was extensive community consultation involving us and also our strategic partner, Ericsson, which is building the network. They have been involved. We actually commenced work last week on the Daruka site.

Senator WILLIAMS: So there will be one or two towers going into Daruka?

Mr McLaren : Just one.

Senator WILLIAMS: One?

Senator Conroy: I know you had some concerns. You might want to ask Mr McLaren. You had some concerns that one would not actually get the sufficient coverage in the area.

Senator WILLIAMS: Is it going to cover all of those residents in Daruka, do you know? I think that earlier reports said about 60 per cent from one tower. Do you have an update on that?

Mr McLaren : The actual tower will radiate according to the geography. I am not sure exactly how many residents will be covered in that Daruka tower. But it will be a substantial number that are in that.

Senator WILLIAMS: What will happen to those residents that are not covered by that tower? Will they stick to the ADSL2 or whatever?

Mr McLaren : From an NBN Co perspective―

Senator Conroy: I doubt they are getting ADSL2―the maximum speeds of ADSL2.

Senator WILLIAMS: Or ADSL1. But let us say for example that 70 per cent are covered by the tower. What will happen to the 30 per cent that is not covered by that wireless broadband?

Mr McLaren : From our perspective we will have the interim satellite available.

Mr Quigley : Or fibre.

Mr McLaren : Or fibre. It will depend. It is unlikely I think particularly for Daruka―

Senator WILLIAMS: It is only a few kilometres on the edge of Tamworth and they are not taking fibre out there, hence the towers.

Mr McLaren : But today the interim satellite service is also available. That does depend on whether they are able to get ADSL. The interim satellite is currently only available to premises where there is no metro comparable broadband service.

Senator WILLIAMS: What will be the guaranteed minimum speeds from the tower for those at Daruka who will be getting the reception? Do you have any idea?

Mr McLaren : The speed that we deliver is 12 megabits per second downstream and one megabit per second up.

Senator WILLIAMS: Of course, those on the wireless will retain their copper wire for their telephone?

Mr McLaren : Yes.

Senator Conroy: Yes, the seven per cent keep the copper.

Senator WILLIAMS: And NBN will maintain the copper wire system as well in those houses?

Mr McLaren : No, we do not maintain the copper. That will remain with Telstra and the arrangements with Telstra.

Mr Harris : It is a new entity―legislation was passed earlier this year and is set up to start on 1 July. It will maintain the copper in the last seven per cent and deal with households that―

Senator WILLIAMS: For the seven per cent that do not get the fibre under the plan, Telstra will maintain that other―

Mr Harris : It is contracted to Telstra, but there is a statutory entity now to take on responsibility and the government is putting into that to also support it—starting at $15 million and rising to $200 million per annum.

Senator Conroy: Senator Williams, I have just gone onto the NBN website and looked for Daruka. Hansard will not quite be able to see it, but you can see here there is Daruka Road. Tamworth is green, which is the fibre. That is under construction. The red-orange is the wireless footprint, which has been started. So some parts around Daruka would be receiving the satellite service just from looking at this map. So not every part of Daruka is going to be covered. I am guessing that the population is in a circle around it, which it will not necessarily be.

Senator WILLIAMS: They will not be in circles around the hill.

Senator Conroy: No. So some will receive a satellite service. Can I can draw your attention to some of the ads that I am sure you have seen, both when you have been on the road as well as here in Canberra. You can see an example of one of the satellite service recipients―in fact, two of them―that are in the ad mix talking about the quality and reliability of the satellite service. I would encourage the Daruka residents―and it is only an interim satellite service; it will be going to a faster service―

Senator WILLIAMS: When do your fast satellites kick off?

Senator Conroy: At the end of 2014 or beginning of 2015.

Senator WILLIAMS: When will this tower be constructed at Daruka and actually operating―do you have any idea?

Senator Conroy: It is underway.

Mr McLaren : It is underway. Construction has commenced. It will be operating within the next six to seven weeks.

Senator Conroy: If you want to check, just type it in. It is very straightforward.

Senator WILLIAMS: Thank you.

Mr Cooney : I have a clarification for Senator Williams on how either you or other senators or people listening can reach us if you have any questions. You have a couple of options. You can go to our website for information, but also if you need to call us we have a 1800 number, a solution centre―1800 881 816―or the DBCDE contact centre as well, which is 1808 883 488.

Senator WILLIAMS: You must realise―and Senator Conroy should listen to this―the English invented the English language, but Australia perfected it.

Mr Cooney : Noted.

CHAIR: Mr Quigley, I am not sure whether you will take this question or the minister. I noticed that the chief executive of Telstra, Mr David Thodey, said that there is not yet enough focus from the government on what business will do with the NBN once it is up and running. Mr Thodey said that he remained sceptical about whether business will be able to use the increased broadband capacity to innovate in the way that the broader community is expecting. I attended the last NBN joint committee hearing on 16 April and there were two major submissions―one from Vodafone Hutchison in terms of the potential they saw for the NBN, which was from their view quite exciting. They argued that, for the first time ever, they will not face unfair competition from Telstra through vertical integration. They argued that they would have bundling services that would provide significant options for consumers―and I assume ‘consumers’ means business as well. They indicated that they had not been a competitive force here, but in Europe they have eight million fixed lines. They are a far bigger presence. If Telstra do not understand the potential of NBN for business then I suppose Vodafone will fill the gap quite quickly. I would like your views on that. I am also a bit concerned that we had Dr Tony Warne and Mr James Shaw, who is here tonight, at that same hearing also indicating the fantastic potential that this has. So I am wondering how the community can actually understand the benefits of NBN if there is uncertainty in an organisation of such significance as Telstra. Have you garnered this problem? Is there an issue?

Mr Quigley : I do not know whether David Thodey was taken out of context in that quote. Certainly in the discussions I have had with Mr Thodey he is absolutely on board and very positive. The people who report to Mr Thodey, with whom I also speak, are quite positive. Jim Hassel, who is at the table here, interfaces regularly with Stuart Lee and his team and many of the account managers in Telstra. He may have a view on how Telstra is seeing it.

Mr Hassel : Telstra has certainly embraced it and been very active. They have basically a big truck which they take around and they have taken round to the communities in our first release sites where we have actually built the fibre. They have a very active program to explain to communities and explain to consumers and businesses the benefits they can expect to get from a superfast fibre-optic network from NBN.

CHAIR: Maybe they should take that to Mr Thodey.

Mr Hassel : I am sure he has seen it. But they do have really quite an extensive amount of collateral that they have built up around that to explain what those benefits might be, and have been actively embracing it and promoting it. It is interesting to note that the products they have announced based on the NBN network are focused on two basic products—one is the 25:5 service in one of the 100:40 service—and they are very active in promoting those. The reason why I mention that is that it is a significant improvement on the types of service that a lot of customers would be able to get and would enable them to do new things and different things. As I say, Telstra has been very active in explaining that, promoting it and embracing NBN.

CHAIR: That is good because I was concerned. I was getting a similar message when I have been asking questions of Telstra—but they see bundling and massive potential in the NBN.

Mr Quigley : There is often an error made by people assuming that the NBN only makes sense if someone can dream up a killer app that is going to use 100 Mb a second. That is not what we are seeing around the world. We what we are seeing that is that in premises broadband is being used for multiple concurrent applications running at once. That is what is adding up to the bandwidth. That is what we are seeing—

Mr McLaren : Multiple devices.

Mr Quigley : Yes, multiple devices operating. Although, having said that, we are starting to see some people—we have spoken to some software developers who are working on single applications that use 100 Mb per second. That is early days. What we are seeing now is—we talked about Bell Alliance in Canada. What they are seeing is current simultaneous use of bandwidth from multiple devices which is driving up the need for high speeds.

CHAIR: Wouldn’t business actually use more applications—a modern business use more applications than a normal home?

Mr Quigley : Absolutely—and they are more likely to use cloud based applications so they do not have to run software on their own PCs in their premises. They run it in the cloud, which gets rid of all of the questions about software updates, backups, security and all those issues.

Mr Cooney : I will add to Mr Quigley’s comments about the multiplication of devices in home or office. It is also that the nature of those devices is becoming much richer. The screens are becoming higher definition. So what it means is that individually the information that is being passed can be a lot richer in the individual stream. And then you multiply that by the number of devices. So you are not seeing a single multiplication. It is two-dimensional, so to speak.

CHAIR: I suppose, Mr Hassel, you are having similar discussions to those you are having with Telstra with Vodafone Hutchison?

Mr Hassel : We are having discussions with lots of service providers—over 40 service providers have signed our wholesale broadband agreement, with an additional three who have signed our satellite agreement. A total of 12 have signed that but there are three just unique to satellite. So 43 different organisations and all looking at different types of services, looking at their target markets—and we have conversations with all of those about how they are going to promote the products and what markets they are going to target and how they are going to go about that.

CHAIR: So would you be confident if one retail provider does not quite understand the potential for business in the NBN there will be plenty there that will fill the gap?

Mr Hassel : I would be very confident about that because not only are there the 40 who have signed it but a number of others who have not signed the agreement have got a great deal of interest in what we are doing and the capability and have plans for the national broadband network. So I would be very confident about that.

CHAIR: And that is the real driver for competition and keeping prices down?

Mr Hassel : Yes.

CHAIR: In the Australian Financial Review of 24 May 2012 there was a headline ‘Smart thinking’ and it says ‘NBN truck rolls into Sydney’. It outlines in a short story about the NBN customised truck that travels throughout the country teaching people how the NBN operates. There is a 10-minute presentation—you get all you need to know after 10 minutes. So if Mr Thodey is still not sure, get him into the truck. It says it demonstrates technology that needs fast speeds to work and tells people when they can expect their houses and businesses be connected. What is the response from the public to the truck?

Mr Cooney : The response so far has been disproportionally positive. We have gone through, I believe, over 50 different communities in Victoria and Tasmania. We are now starting our journey through New South Wales. We have been asking questions as people have been leaving the truck—did they find it useful, did they find it enjoyable, did it answer their questions—and it has been disproportionally positive. The question did they find it a good experience has so far had a 100 per cent positive response, I believe. So the response has been disproportionally positive and it plays to the question that Senator Williams was talking about, which is ensuring that we engage local communities, especially regional and remote local communities in their communities in a way that they can start to engage in understand exactly what the NBN is and what the NBN will do for them. The truck is in Canberra next month as well, by Old Parliament House.

CHAIR: What dates?

Mr Cooney : I do not have the exact dates but I can get you those.

CHAIR: Thank you. I am sure there is somebody listening in who might want to know that. The Australian on Wednesday, 23 May 2012 has a heading ‘Foreign companies grab 82 cents in every dollar of contracts’. The story goes on to say that the figures have angered local industry and quoted the opposition communications spokesman, Malcolm Turnbull—

Senator Conroy: They did not name which local satellite producer/manufacturer they had angered?

CHAIR: ‘The nature of the NBN is obviously very anticompetitive and that tends to discriminate against local suppliers.’ What is the reality of this issue?

Mr Quigley : The reality is—and my colleagues will correct me if my numbers are not quite right—we are close to 50 per cent of real local content. We do everything we can to make sure that we foster local content. By the way, the amount of local activity in this network will go up as we continue to build, because that is all done locally. There are certain parts of certain pieces of equipment that you simply cannot buy from Australian companies because they are not manufactured here in Australia, such as satellites, ethernet switches and gigabit passive optical networking gear. You just cannot buy them from Australian manufacturers. There is also complete nonsense suggesting that what should be looked at is Australian owned companies. If you look just at Corning, it has invested in, I believe, another 400 jobs and is locally manufacturing cable just outside Melbourne. They have invested in a lot of infrastructure, people and training and they will be exporting some of the products they are making for the NBN. But of course the parent company is Corning. It is an American company but that does not mean that there is not a lot of activity going on. So to discount that activity in Australia just because the parent company is American I think is just disingenuous.

CHAIR: Can I take you to Hobart now. The Mercury on 23 May 2012 had the headline ‘State shares in NBN coup’. It is talking about Skills Tasmania and New South Wales TAFE having won a $4.2 million national broadband network contract for 85 pilot projects across Australia. Who can tell me about that?

Mr Cooney : I cannot really tell you any more than what the headline says. They are looking to support the rollout in terms of ensuring that the skills that are needed are supported in the local community as well. I think that is pretty much in the headline.

CHAIR: Back to my home state, the Daily Telegraph actually has a positive story about the NBN.

Senator Conroy: I am sure it was an accident.

CHAIR: It is under council news. The councils, I think, have been pretty supportive of this around the country. It talks about six satellite dishes located at Wolumla, south of Bega and north of the Princes Highway. It says the Bega Shire Council Mayor, Councillor Tony Allen, said NBN Co.’s decision to site the satellite ground station gateway at Wolumla is a very positive things for the shire. What discussions has NBN had with the Merimbula Shire Council about the benefits of these sitings?

Mr McLaren : We are obviously working with the council there going through the planning process for the facility. The facility is an extensive one. As you mentioned, there will be up to six large 13 metre antennas, so it is a significant construction that will go on at the site, building not only those large antennas but also the actual facility to house our equipment. So we have been working with the local council and the local community and obviously advising them of the benefits that will come from the work that will flow from the construction of those sites and those antennas in particular. And ongoing it is going to be a very critical site for our network. It is one of the first sites for a reason: because it will be a key one for flying the satellites. So we are very keen to work with the council there.

CHAIR: I am not sure if it was in your opening statement or there was some discussion about towers associated with NBN.

Mr McLaren : I am not sure if it was in the opening statement but we are working with local communities again about going through a planning process and pre-consultations with local communities about the need for building towers and monopoles to be able to locate our fixed wireless.

CHAIR: We have just gone through an inquiry that Telstra made submissions to in relation to towers and the issues associated with them. Community consultation was one of the recommendations from that committee. So could you maybe take it on notice and provide a broad outline of the process of communications in relation to your towers? It is a very important community issue.

Mr McLaren : And we are working, as I said, on a pre-consultation plan with all of the communities where we start the planning process. In advance of that we will be going into the community, talking about the benefits of the fixed wireless network, describing the types of towers and poles that will be needed and the approximate locations of those and then working with the community and the local council. So we are already putting them in place and we can certainly provide more detail.

CHAIR: I will come back to the Australian on Wednesday, 16 May 2012. The headline is ‘Turnbull unleashes on need for speed’. It is a report on Mr Turnbull’s contribution to the Broadband World Forum Asia and in Kuala Lumpur. In the third paragraph it says:

Mr Turnbull said a coalition government would be technologically agnostic with outcomes focused on service quality rather than a particular technology. A mix of technologies will upgrade services sooner than near universal FTTP at less cost to the taxpayer and more affordably for end users because the combination of a less expensive network and the return of competition will put downward pressures on prices.

Is there any evidence to support this approach?

Mr Quigley : It is a very difficult question to answer. This is always a complex issue. The question is if you are going to start to build now to broadband Australia to provide better services across the country, depending on the time frame you look at and what your objectives, if you are a private enterprise that owns copper you are going to continue to try to maximise the profit you can return from that copper. As a private enterprise the objective is to maximise profit for your shareholders, not to provide a public good or a public service to broadband Australia. So it depends on your starting point. It also depends on your time horizon. If you are looking at a long-term investment for the good of the country I think we believe in NBN Co. that the approach that is being taken is the right one: to invest in fibre across the nation up to a point of about 90 to 93 per cent, as we talked about before, when it really becomes prohibitive to put fibre in in terms of costs but then still to provide that last 7 to 10 per cent with a very good service on fixed wireless or satellite. Our belief is this is a good answer for the nation. Can it be done other ways? Yes of course you can do other things but there are a whole bunch of trade-offs then that you need to make. The other very important factor is this is not just building a new broadband network; it is also restructuring the industry. It is the vehicle for structural separation, which I think everybody in the industry supports. It is not an easy thing to achieve. This is quite an elegant solution to that problem as well.

CHAIR: The Adelaide Advertiser on 15 May reported on the new high-speed hubs. It says the new high-speed hubs will mean jobs. It starts off saying ‘NBN expects to create a dozen new jobs in Adelaide when it launches the two high-speed connection hubs.’ There are not a huge amount of jobs in the hubs but technical jobs and jobs that are there. It then goes on to say that there could be employment in data centres and these data centres help to drive the growth in cloud computing. What is the link between NBN and this cloud computing and the growth of jobs?

Mr Hassel : One of the things which is enabled by the NBN—by a superfast network—is the ability to do a lot more data processing not in your own site as a business or as an individual but somewhere else. Cloud computing is really something that is expanding very rapidly both in the consumer sector and in the business sector. To be able to offer that there are a lot of companies that are now investing in Australia in data centres based right around the country. I think in the last 18 months or so there has been about $1½ billion of investments announced from companies a diverse as Telstra, Leightons, Macquarie Telecom, Hewlett-Packard and a number of other companies. They will be able to offer services based over the cloud so that companies and individuals do not have to invest in their own computing infrastructure to run the kinds of applications that they need. What that means is that it will be much cheaper and easier for them to get access to really world-class type applications. In addition to that, to be able to service them you build up these cloud centres or data centres, and they in themselves require highly technical people and will create employment for that.

CHAIR: Will they use the NBN?

Mr Hassel : Yes, the NBN is the enabler. Because you get the speed of the network and the capability of the network it means you do not have to have the proximity to your actual computer power. That is really what the cloud allows you to do.

CHAIR: The Australian on 8 May reported ‘NBN in push for deal on rollout’. It says ‘NBN is aiming to finalise by the end of the month an agreement with the New South Wales government crucial for the rollout of its $36 billion fibre network.’ It is a master facilities agreement. Is that still progressing satisfactorily?

Mr Quigley : It is still being worked on. We have had discussions with the New South Wales government. We are hoping to conclude a deal before too long.

CHAIR: I want your comment on an article in the West Australian on Monday, 7 May 2012, on page 15. The headline is ‘Wireless 4G leaves NBN in its wake’—

Senator Conroy: That was a very funny article.

CHAIR: by Louise Burke. It goes on to say, ‘A new wave of 4G wireless broadband networks will eclipse the speed of some fibre plans before the national broadband network even rolls through Perth streets.’ My take on this is that the 4G comes nowhere close to the speeds that the NBN provides. They have picked one—tell me if I am right or wrong on this. They have picked the lowest band of speed in the NBN, compared it to the 4G and then said the 4G leaves NBN in its wake. As the story goes on it is really not about the NBN; it is about Telstra.

Senator Conroy: I think it is actually worse than that. I think she reveals that she is the only user on the tower, which means that she gets the full capacity of the tower. But please let Mr McLaren enjoy himself.

Mr McLaren : We have seen a number of articles along this line and obviously we need to dispel the myths there. The problem with 4G networks is still the lack of capacity. As many users come onto the network, the network will slow down appreciably. That is simply something we do not have with the fibre network. The capacities are orders of magnitude higher. So more users can use the network without degrading the speed. But we are also seeing—and this is probably the key point—more and more use of the fixed networks. The download usage on fixed networks last year grew by 80 per cent whereas on the mobile networks it only grew by six or eight per cent—

Mr Quigley : Less than six per cent.

Mr McLaren : and that is on a per user basis. Even today it is the fixed networks that we have today that are doing all of the heavy lifting. So what we are seeing going forward is that the fibre network will be the network that does the heavy lifting where people use it for high-speed applications, video applications. Business applications, as we mentioned before, will be all predominantly done on the fixed fibre network. The 4G will still be a very good network. It has great value because of the mobility. People value mobility, but it will not be the network you can use for these heavy usage applications.

CHAIR: Can I take you to the address by the leader of the opposition, Tony Abbott, to Infrastructure Partnerships Australia in Sydney. He is quoted as saying the national broadband network is digging up streets so that families can pay three times the current price for broadband speeds they do not necessarily want or need and that could be delivered sooner at vastly lower costs. Where does this three times the current price from broadband speeds come from? Is there any analysis around that says the NBN price will be three times the current price?

Mr Quigley : I think it came from the same place and the same speech as the figure of $150 billion for the cost of the network.

CHAIR: I was going to come to that.

Mr Cooney : The three times flies in the face of what we have already talked about. We are already seeing the market with retail pricing which is showing that it is comparable to prices already. In fact in many cases people are getting more value for the dollars that they are spending.

Mr Quigley : So it is fiction.

CHAIR: Political fiction?

Mr Quigley : Evidence in the market is suggesting otherwise.

Mr Cooney : Mr Quigley could not possibly say that but I will certainly call it that.

Senator FISHER: Mr Quigley, can you update us as to the breadth of redundancy provision in NBN Co.’s with senior staff?

Mr Quigley : Normally when contracts are negotiated with the senior staff they are bilateral in the sense that the individual has to give the company a certain number of months notice and the company has to give the individual a certain number of months notice. If they do not do that then they have a payout.

Senator FISHER: What are the minimum and maximum notice provisions?

Mr Quigley : There is quite a range. They probably range from six months down to some weeks, depending on the level of the person in the company.

Senator FISHER: You think, or you know?

Mr Quigley : That is what I believe. I will check for you.

Senator FISHER: Thank you—minimum and maximum notice provisions for termination other than redundancy plus notice provisions for redundancy, maximum and minimum, in the event that you have both. You may well. Redundancy is usually when the job disappears, Mr Quigley. Many people get terminated reasons other than that.

Mr Quigley : I am aware of that.

Senator Conroy: He may have run a company with 25,000 or 30,000 employees. He has probably come across it.

Senator FISHER: Mr Quigley, in the very last sentence of your opening statement you say ‘This survey confirms what we see in local councils and communities that there is widespread support for the project independent of voting preferences.’ How do you know that?

Senator Conroy: The Essential poll.

Mr Quigley : Yes, the Essential poll.

Senator Conroy: It showed that a larger number of coalition voters supported the NBN than opposed it.

Senator FISHER: That may well be the survey, but you say this confirms what you see in local councils and communities―widespread support, independent of voting preferences. How do you know that in councils and communities there is widespread support independent of voting?

Senator Conroy: Noosa, which traditionally votes―

Senator FISHER: I am still asking my question.

Senator Conroy: heavily votes for―

CHAIR: Senator Conroy, allow Senator Fisher to finish the question.

Mr Quigley : We have applications―in fact, lobbying―from councils all around the country. It is literally hundreds of them. Those councils could be Labor councils or Liberal councils―it does not matter―

Senator FISHER: Do you know? Have you analysed them or are you just presuming?

Mr Quigley : No, we know some of them are. They are not all Labor councils.

Senator Conroy: Take Barcoo Bruce, who we were having a conversation about before. He is a National Party member and he is lobbying for fibre.

Senator FISHER: Have you done an analysis of those which support and those that do not versus what you―

Mr Quigley : No, I have done no formal analysis. I am prepared to―

Senator FISHER: So it is a rather generalised claim, isn’t it, rather than one empirically based?

Senator Conroy: Not in the slightest.

Mr Quigley : I am reasonably confident that it is accurate.

Senator FISHER: I accept what you are saying in terms of the survey itself, but we will have to beg to differ on your claim that the community support et cetera is demonstrably independent of voting preferences because you have not―

Senator Conroy: It is.

Senator FISHER: convinced me just now that you have empirical evidence to support that.

Senator Conroy: The poll was 42 per cent support―

Senator FISHER: I am not asking about the poll, you poll-driven beast.

Senator Conroy: 40 per cent opposed among coalition voters.

Senator FISHER: Mr Quigley, still going with your opening statement, you mention on page 2 that also in that time the total premises in areas where work has commenced has risen to 318,000. What is your definition of ‘work has commenced’?

Mr Quigley : This is where we have done what is called a network design document―in other words we have got information from Telstra about the disposition of the duct and pit network, we have got survey information on an FSAM―and here we are talking about an FSAM by FSAM basis because we produce network design documents FSAM by FSAM and I mentioned that we produce now over 100 of them. We have to then do a design which lays out where all of the fibre will go, where the fibre distribution hubs will go and all of that, so all of that work. We do not classify that as work commenced―it is only work commenced once we have finished that document and it goes to the next stage.

Senator FISHER: You do go on to say that at this stage the work is predominantly design work. Is it fair to say then that your commencement work is what could be called desk design work? It is all done from a desk? Is it extended to field design work?

Mr Quigley : Yes.

Senator FISHER: So are you saying that in your 318,000 you do not count a premise as one where work has commenced unless at least there has been field design work?

Mr Quigley : Until we have the network design document, which is largely done on a desk―by the way there is―

Senator FISHER: It sounds pretty desky to me.

Mr Quigley : It is. But we do not count that as work commenced. It is only when it goes to the next stage, where it actually goes to contractors who have to do what is called the detailed design and where they have to go out into the field, for example, and start rodding and roping.

Senator FISHER: So you do not―

Senator Conroy: In a range of press releases this information is set out.

Senator FISHER: Mr Quigley, the premise does not qualify in your definition, which is fine, as work commenced unless and until it has reached the field design stage?

Mr Quigley : It is not called field design―it is called detailed design. So there is an NDD and a DDD.

Senator FISHER: But I am trying to get some sort of practical view of it. You have a contractor who goes and does something outside rather than someone sitting at a desk?

Mr Quigley : Yes. So it is with them and we pass it to them.

Senator FISHER: Although nothing has actually happened with respect to that premise yet other than people looking at it and assessing it and designing?

Senator Conroy: To give you an indication, it involves―

Senator FISHER: Have you ever done it? No, I will not ask you.

Senator Conroy: It involves things like―what do we call it?

Mr Quigley : Rodding and roping.

Senator Conroy: Rodding and roping in pits and ducts to ensure that―

Mr Quigley : Just ducts.

Senator Conroy: Just ducts―okay.

Senator FISHER: Thank you.

Senator Conroy: So there is actual work taking place.

Senator FISHER: In terms of the cable that we are laying―and maybe this is for Mr McLaren―I understand that it is ribbon cable.

Mr McLaren : Yes, we are using ribbon cable in our type 2 designs.

Senator FISHER: Does it look like what I am holding?

Mr McLaren : I might have to get a bit closer to see exactly what is happening.

Senator FISHER: As opposed to that?

Senator Conroy: That might have been the early stages.

Mr Quigley : We have had a transition where we are moving from―

CHAIR: Have you had any reported thefts?

Senator Conroy: Seriously, I do not know how she has got that ribbon. You must have been ferreting down―

Mr McLaren : The green is ribbon. The blue is an earlier version called stranded fibre that we used in our first release.

Senator FISHER: If Mr McLaren could hang onto it for a few more moments.

Senator Conroy: This is going to be funny.

Senator FISHER: I am not―

Senator Conroy: Make sure the cameras are rolling.

Senator FISHER: Mr McLaren, you would know. If you have a look at the ribbon fibre, do you agree that it is larger in size―in fact I am told it is about 25 per cent larger in size―than the standard loose fibre cable?

Senator Conroy: Define size.

Mr McLaren : Are you referring to the diameter of these particular cables here and comparing the two?

Senator FISHER: Yes.

Mr McLaren : I can tell quite quickly that the number of fibres in the green is substantially more than the number in the red.

Senator Conroy: Congratulations, Mr McLaren.

Senator FISHER: Can you tell, Mr McLaren, that the ribbon fibre is about 10 per cent heavier than the standard loose fibre cable? I know they are slightly different lengths.

Mr McLaren : I cannot tell to 10 per cent.

Senator FISHER: I could when I had a bit of a weigh-up.

Senator Conroy: Too much information.

Senator FISHER: Put it this way―the industry tells me that the green one is about 10 per cent heavier―the ribbon fibre is about 10 per cent heavier than the―

Senator Conroy: How many extra fibres?

Mr McLaren : We are not comparing apples with apples.

Senator FISHER: Exactly, except when it comes to laying cable, extra size, extra weight and lack of symmetry. This is serious, Minister. You chipped us for laughing before but you are laying this ribbon cable, or trying to, around the country and I am entitled to ask questions about it. Would you agree that the ribbon cable is not symmetrical when compared with the loose fibre cable?

Mr McLaren : What do you mean by symmetrical?

Senator FISHER: You can see that there are ridges on the ribbon cable on the outside.

Mr McLaren : There are ridges on both.

Senator FISHER: Put it this way. The industry tells me that it is well known―

Senator Conroy: Would you like to visit the Corning plant? I can organise it.

Senator FISHER: The ribbon fibre cable lacks symmetry whereas a standard loose fibre is symmetrical.

Senator Conroy: And what is the consequence of the allegation?

Senator FISHER: Are you aware of the manufacturing costs of ribbon versus loose fibre cable?

Senator Conroy: Please say yes.

Mr McLaren : Yes, we are aware.

Senator FISHER: Is one more expensive than the other per metre?

Mr McLaren : We know that the ribbon fibre is less expensive for the number of fibres that are being used than the stranded fibre.

Senator FISHER: Okay. That is contrary to the information that I have.

Senator Conroy: Would you like to visit the Corning plant? I can organise it.

Mr McLaren : The production techniques here are all about being more efficient and being able to actually extrude the number of fibres in the ribbon rather than having it as a single fibre.

Senator Conroy: It is 12 per ribbon I think.

Senator FISHER: You said it was cheaper―how did you―

Mr Quigley : Per fibre.

Mr McLaren : Per fibre basis, looking at the cable and how many fibres are in it and looking at―

Senator FISHER: As opposed to per metre?

Mr McLaren : The cost per metre depends on how many fibres are in it.

Senator Conroy: $40 million invested so that you can be more expensive.

Senator FISHER: Has NBN had look at the existing pit and pipe underground structure to ascertain to what extent additional work is required to make sure that your ribbon fibre fits?

Mr McLaren : We have spent quite a bit of time―

Senator Conroy: This is what my mis-explaining rodding and roping was about, wasn’t it?

Mr McLaren : obviously working with Telstra who are leasing the ducts off and spent a great deal of time during the negotiations defining how we would use the ducts and how we would obviously install fibre, yes.

Senator FISHER: What are the sorts of installation issues you find with ribbon fibre?

Mr McLaren : The great advantage of ribbon fibre is that, because each of these 12 fibres are in one ribbon, we can actually do the splicing. We have to splice all of the fibre cables. We can do all of those 12 spices in one task or one action with the machine. So we actually get efficiencies―approximately 12 to one efficiencies―in the amount of labour that is needed to build the network.

Senator FISHER: What about the end result? Are you familiar with the industry view that with ribbon fibre you are literally splicing the cladding, whereas with loose fibre you are splicing the core and you are connecting core with core―with ribbon fibre you are connecting the cladding.

Mr McLaren : We have analysed different fibre and worked with our supply partners, who are using this technology and this ribbon fibre in many markets around the world.

Mr Quigley : Just on that last statement that with one you are splicing the cladding and on the other you are splicing the core, you will not transmit light if you only splice the cladding. It will simply not work. I do not know what the industry sources are that you are using, but they are not very reliable.

Senator FISHER: Does that mean that you would not agree with the claim that there is greater signal loss when you splice ribbon fibre versus splicing loose fibre?

Mr McLaren : Absolutely not. I would not agree.

Senator FISHER: Okay.

CHAIR: Can I just ask a question―

Senator Conroy: Just so that I can try and understand: what are you defining as signal loss―that they break more of them individually or that the actual transmission down the line is impaired?

Senator FISHER: decibels―dBs.

Mr McLaren : The way you measure a loss of splice is in dB―exactly―but essentially we do not see any issue with using ribbon fibre for splicing. The splicing process is very effective at―

Senator FISHER: So what loss would you project with ribbon and splicing? What actual loss would you project? There would be some, wouldn’t there?

Mr Quigley : Per splice?

Senator FISHER: Yes.

Mr McLaren : I believe it is about 0.1 dB.

Mr Quigley : It is hardly comparable. The two are almost the same. But the advantage of the ribbon fibre is that in fact you get more reproducibility.

Mr McLaren : Correct, and more efficiency in that splice.

Mr Quigley : In terms of the overall power budget, by the way, from laser to receiver, the loss in the splices is negligible.

Mr McLaren : Correct.

Senator FISHER: In terms of the actual laying of the ribbon cable given that it is larger and heavier, does that mean it is less flexible than loose fibre cable?

Mr McLaren : For the same number of fibres, no. For the same number of fibres that are put into the cable I would expect the reverse to be true.

Senator FISHER: So for example can you coil the ribbon cable into―what do you call it; if there are five points you call it a five something or other.

CHAIR: What did your industry source call it?

Senator FISHER: A five something or other. And I cannot remember it, to be honest.

Mr McLaren : I am not sure what you mean by the five.

Senator Conroy: Would you like to visit the Corning plant?

Senator FISHER: It is correct, isn’t it, that the cable has to be coiled?

Mr McLaren : What we look to do in pits is to leave some remaining fibre for future growth and to actually be able to take the splice so that we can do it outside of the pit. It is obviously not the best place to do it in the pit. You need to actually do it outside of a pit in a safe working area.

Senator FISHER: For example, if you are going under a road, you need to fix it perhaps with coils on either side?

Mr McLaren : We need to have coils mainly so that we can actually do the splicing not in the pit, which is obviously underground and quite dirty. We actually draw the fibre out of the pit to a safe working place that may involve a vehicle of some sort and that is why when we actually then complete that splice we coil it back in.

Senator FISHER: Do you know of any other communication carrier in Australia using ribbon fibre?

Mr McLaren : This is certainly new technology in Australia, but we have been working with our suppliers and seeing this being used for the types of networks that we are deploying, which is obviously substantial fibre that is being deployed in other markets. We have not seen this used in Australia because we have not used this number of fibres in a cable.

Mr Quigley : Last time I saw the number of fibre to the prem, the number I remember off the top of my head―and we can certainly get it for you―is that 20 million premises are being covered by ribbon fibre.

Mr McLaren : We would obviously need to check that.

Mr Quigley : Yes, we can check that, but it is something like that. But it is for large-scale fibre rollout.

Mr McLaren : Which is what we are doing.

Senator FISHER: So NBN Co. has as I understand it a contract with Silica which is in the process of contracting with people to do the rollout of―

Mr McLaren : Silcar, yes.

Senator FISHER: Are you familiar with the rates for which they are requiring contractors to tender to do the work?

Mr Quigley : Are you talking about their subcontractors?

Senator FISHER: Yes.

Mr Quigley : No, I am not. Our construction people may be, but it is up to them to contract. They are the prime contractors. It is up to them to contract with subcontractors for work that needs to be done. This is a normal model. It is done by Telstra and others.

Senator FISHER: Yes, Mr Hassel is product development, not―

CHAIR: If you are moving off the issue of the actual cable, I just have one question.

Senator FISHER: Not just yet.

CHAIR: You are still going?

Senator FISHER: I am almost finished on it. I am informed that the rates that Silcar is requiring subcontractors to provide the work for are significantly in commercial terms lower than what have traditionally been the industry rates for laying cable and, for example, the rates that used to be paid by Telstra.

Senator Conroy: I thought we were having a blowout in construction costs.

Senator FISHER: You cannot have your cake and eat it too, Minister. I get that.

Senator Conroy: You cannot say one day that Mr Quigley is hopeless because he cancelled the construction contracts because there was a blowout and the next day come in and accuse him of getting a really good below current market price.

Senator FISHER: My question is: are you reassured that Silcar is recruiting contractors to do this work and that it is actually happening?

Mr Quigley : Yes, of course. It is not just Silcar, by the way. We have announced a construction contract with Transfield and we have announced a construction contract with Syntheo and also one with Visionstream.

Senator FISHER: I have one further question on the cable. I may be proven wrong. I have a document―

Senator Conroy: Not maybe.

Senator FISHER: This is a workbook from a course. It says at the top that it is an NBN Co. approved training course. Can the secretariat circulate the front page of it. It also has two other pages following. This is an NBN safety and awareness course and a major part of it is about essentially laying the cable. The pages that I have extracted―

Senator Conroy: 62 and 63?

Senator FISHER: That is it. You will see that page 62 has pictures of ribbon fibre, which is what we are laying. I draw your attention―and if any of you know the answer, it will be Mr McLaren―to the graphics on the second page and the picture in particular. It is supposedly a splicing machine. We are talking about ribbon fibre. But I am told that that is a picture of a loose fibre splicing machine. Is that correct?

Mr McLaren : I could not tell straight off the actual visual there.

Mr Quigley : But it could be.

Senator FISHER: Can I ask you on notice―except that I have to tell you whose handbook this is―to get back to me and confirm because if the whole approach is ribbon fibre and yet people are being trained and shown a photograph a loose cable splicer―I, of course, would not know the difference.

Mr Quigley : But if I can just draw your attention to the fact that page 63 is related to the risks associated with handling their fibre, whether it is ribbon splicer or loose tube single fibre splicer is irrelevant to the message that is being delivered on this page.

Senator FISHER: Yes, but NBN Co. is just doing ribbon cable, so why would you confuse the story? That is all I have.

Mr McLaren : Sometimes we have a single lead-in to a house―we will have one single fibre.

Mr Quigley : You do not use a ribbon fibre going into a premises.

Mr McLaren : There may be many cases with obviously all of the eight million premises where we are looking to put single fibre.

Senator FISHER: I will not bother you to answer that question on notice.

CHAIR: Just on this issue of the cable, Senator Fisher raised a number of issues―flexibility, loss of dB, coiling and insertion problems. Are there any technical papers or any industry sources or any reports from industry journals that discuss these issues in relation to NBN?

Mr McLaren : Not to my knowledge, Chair.

CHAIR: Do you think you would know if there were?

Mr McLaren : I would hope I would know.

CHAIR: Obviously Senator Fisher is not going to say who her industry sources are, but they are quite wrong in all of these issues, aren’t they?

Senator Conroy: On the basis of information―

Mr McLaren : On the basis of what I have been hearing today, yes, I would say so.

CHAIR: Thank you.

Senator FISHER: Maybe I misunderstood after all that. I heard Mr Harris talking about the reason in his view that a department would not analyse perhaps alternative government policies, so my question is not to Mr Harris. However, it is nonetheless whether NBN Co. has done any work on alternative network design or architecture that is in line with what you understand the coalition policy to be.

Mr Quigley : We really do seek guidance from the government in terms of these types of issues.

Senator Conroy: There is an appropriate time when the department prepares―and I think you have been given this information―

Senator FISHER: I am asking Mr Quigley―

Senator Conroy: Sorry, Senator Fisher, I will explain it to you again. All questions come to me and I pass them out. So you are asking me and I pass it over if I want to. I can jump in and add information any time I want. As has been explained to you previously by Mr Harris, there is an appropriate point in time when an election is called. Mr Harris, would you just like to clarify what you said?

Senator FISHER: Mr Harris, I listened and you put it really well. Thank you.

Mr Harris : We will be put into caretaker mode.

Senator Conroy: Yes―caretaker mode.

Senator FISHER: So, Mr Quigley, in 2010 in the middle of the election campaign you gave a speech―and I have a copy of it here, the Charles Todd Memorial Oration on 18 August―which in the eyes of many people was an endorsement of Labor’s broadband policy over the coalition’s. How do you see caretaker conventions and would you contemplate giving a similar speech next time around?

Mr Quigley : I gave that speech in response to what was in fact what I viewed as misinformation. I saw a lot of misinformation in the media. For example, one quote that comes to mind. Because Google had announced a one gigabit per second trial overseas, there were numerous reports in the Australian media that we were building an obsolete network because it could only deliver 100 megabits per second and we were going to be left behind. I thought it very important to correct that misapprehension. I know I was accused of announcing a gigabit per second I think in a caretaker period, but I was simply correcting the record at that time where there was misinformation in the Australian media.

Senator FISHER: You also went on to say why it is better to invest $27 billion rather than spend six, how creating a monopoly helps competition, why a ubiquitous broadband network is not just equitable but is essential, why wireless cannot on its own serve our long-term broadband needs.

Mr Quigley : It cannot in the long term satisfy our broadband needs.

Senator Conroy: All factual statements. Truth is a defence in some countries.

Senator FISHER: I understand that you have been upfront, Mr Quigley, and said mea culpa―we have not achieved the build that we projected in our corporate plan. But I do want to ask you―

Senator Conroy: You can put words into his mouth, but that is not what he said.

Senator FISHER: Your corporate plan said that by June 2012 there would be 127,000 active fibre services, and I am talking greenfields. You have said that you have passed 1,000. You have 110 active and you have updated that a bit tonight, I think. But that is what you said was the case in your joint committee report in December. So Telstra has done 35,000 copper. But that is about 36,000 or 37,000 out of what was going to be 127,000. We have heard you explain why. But what has happened to all of those people in between, because they have not got phones.

Mr Quigley : I think you might have missed the lengthy explanation I gave to Senator Birmingham on this question earlier in the hearing.

Senator FISHER: What is the answer?

Senator BIRMINGHAM: There is a quick answer to that actually.

Senator Conroy: You are asking about the lots versus people.

Senator FISHER: What has happened to everybody? I understand that you have fallen behind, yes. What is everyone doing meanwhile?

Mr Quigley : 127,000 is the number of―

Senator BIRMINGHAM: Lots.

Mr Quigley : Lots, yes.

Senator Conroy: We did have a lengthy discussion.

Senator FISHER: That is where that came in. Okay.

Senator BIRMINGHAM: Can you tell us how much NBN Co. will spend on paid advertising this financial year?

Mr Quigley : Mr Cooney might be best placed to answer that one.

Mr Cooney : It depends on what you mean by advertising. For the three-year announcement advertising or probably promotional advertising we spent $3.659 million. There was an additional overall in the marketing budget of about 8.12, but that includes job ads, community notices and so forth as well.

Senator BIRMINGHAM: So 3.659 million on paid media advertising for the three-year announcement?

Mr Cooney : Yes.

Senator BIRMINGHAM: And 8.12 million on paid media advertising overall?

Mr Cooney : Sorry, one is a subset of the other.

Senator BIRMINGHAM: Yes. Thank you. In terms of the advertising spend, it was reported that NBN Co. had pulled live read commercials from 2GB. Is that correct?

Mr Cooney : What happened was that we were offered a product from a series of radio stations to do live reads. It was a very good product for us because the nature of the communication that we wanted to get across was very informational―this is about to occur, this is what you need to do and this is how to find out more information. So a live read was a very valid way for us to communicate. Again, we were offered the product and we bought it with in good faith. It turned out that from memory there were 28 or 26 different DJs―I will go with 28―that were offered to read this and 26 or 24 of them read it cleanly and straight and read it well. Two did not and added further commentary around it, so we went to the station management. They apologised. They offered compensation in the form of other advertising and we took it. But again from memory 26 of 28―

CHAIR: Was this negative additional commentary?

Mr Cooney : Yes, by and large, it was negative.

CHAIR: So 2GB took the money for the ad, ran the ad and then made negative comments about it?

Mr Cooney : Yes.

Senator Conroy: During it, before it and after it.

Mr Cooney : And to 2GB’s credit the station owners actually apologised and we had compensation as well.

CHAIR: Who were the readers?

Mr Cooney : It was Ray Hadley―

CHAIR: Ray Hadley?

Mr Cooney : And I do not remember the other DJ. It was a DJ who was standing in for Alan Jones.

Senator BIRMINGHAM: So you did not actually―

CHAIR: Maybe you can take that on notice and provide us with the information.

Senator BIRMINGHAM: So you did not actually pull the advertising per se, but compensation was offered, NBN Co. accepted the compensation and presumably that has all been delivered as per your expectations?

Mr Cooney : Yes, it has finished now. It was only running for two weeks.

Senator BIRMINGHAM: Just to be clear on the figures you cited before—is the $3.659 million the total that will be spent this financial year on paid advertising promoting the rollout?

Mr Cooney : That was the three-year announcement campaign, which ran for four weeks.

Senator BIRMINGHAM: And that is the end of that campaign. Is there now another campaign, or is that the only campaign.

Mr Cooney : We have ongoing communications to both communities and individuals. It is something that we see as essential, on a couple of points. We think it is the appropriate and right thing to do, and we are obliged to under a deed to be able to ensure that we communicate to all affected Australians to ensure that they are aware of what the NBN is, when it will become available to them and what steps they have to take. On top of that, this is the right thing to do, as we are starting to turn up in their communities and we need to inform them what we are doing. There is information and there is also preparation. We are starting to see areas such as Kiama where they are starting to change, for example, the way the council are dealing with their local community and the way the University of Wollongong is dealing with its students. All of that takes preparation. We ensure that we communicate and we engage the local communities. Last of all we need to ensure that we can assist a smooth migration from the copper infrastructure that is being retired to the fibre infrastructure. For that, and it is a really important point, we need to make sure that every single person—we are talking about 12 million premises over 10 years. Every single one of those 12 million business owners or home owners needs to take an action. They need to order a service. So they need to be informed of when that service is available, what it will mean, what it will do for them and what the steps are to do that.

Senator BIRMINGHAM: What is the advertising budget for next financial year?

Mr Cooney : We have yet to confirm that. It will be part of the corporate plan that was talked about before.

Senator BIRMINGHAM: So none of the budget for the next financial year has been set? All of that rests on the corporate plan?

Mr Cooney : That is how we release it, yes.

Mr Harris : Mr Cooney referred in passing to the deed. There is an obligation in our agreements with Telstra to run a campaign. I am assuming that that is likely to commence next year. The time frame would certainly require it to commence sometime next year. So since we are on the topic and since next year will be a sensitive time, it may be best to foreshadow that that is a requirement of our agreements with Telstra.

Senator Conroy: It is for really old equipment that people have not upgraded—encouraging them to upgrade their equipment. That is copper based technology equipment—really old.

Mr Harris : PABX.

Senator BIRMINGHAM: Really old phones, essentially.

Mr Harris : Yes. People will need to be made aware of that. There was a concern in our negotiations with Telstra, expressed by them, that if this was not specifically targeted then it would cause a significant problem in the actual close-down period for the copper.

Senator BIRMINGHAM: You have a separate version of the digital switchover on your hands?

Mr Harris : Yes. It is a good analogy.

Senator Conroy: Fortunately we are well practised.

Mr Cooney : The point that was touched on there was that, as has been mentioned several times, there is a closure of the copper network. There is a retiring 18 months later. So you have to ensure that homeowners and business owners are aware that that will occur. They need to be given ample information, ample time and ample means to be able to make their decisions prior to that.

Senator BIRMINGHAM: I appreciate that, and I want to come to a bit about targeting in a second. Did NBN Co recommend that the department undertake the $20 million campaign that they are in the throes of undertaking to regional Australia?

Mr Cooney : No.

Senator BIRMINGHAM: Did NBN Co provide any comment to that campaign for the department?

Mr Cooney : It was very important, as we have different roles in our communications, to ensure that there was not a waste of funds, there was not an overlap in communications and there was not confusion for the end recipients of that communication. So early on in the process we had discussions to ensure that we were both aware of the job we had to do. We agreed that.

Mr Harris : You might remember, Senator, I told you that this morning when I said an analysis was done before the campaign about what NBN Co would be doing and what we would do.

Senator BIRMINGHAM: Did NBN Co identify the talent for the department’s commercials?

Mr Cooney : I am not aware that we were approached. But I do know that some of the example stories are examples we have used or we have used on our website. We have many case studies on our website.

Senator BIRMINGHAM: So you may have provided the lead for the talent?

Senator Conroy: The agency went and approached the talent.

Senator BIRMINGHAM: Can I come to NBN Co’s specific print campaign. Your campaign to date has been only a mixture of print and radio?

Mr Cooney : And online.

Senator BIRMINGHAM: And online of course. Perhaps on notice you can provide us with the split between those media. Is your campaign only targeting geographic locations where the NBN will be rolled out in this first stage?

Mr Cooney : Where at all possible. We have a media purchasing challenge around this. As we have announced only a month or so ago, we are looking to roll out over the next three years to a third of Australian premises and business. Unfortunately, from a media perspective, those are not tightly clumped in one area; nor are they grouped around media-buying circles. Instead they are dispersed across the map. So in order to be able to purchase media meaningfully there is overlap sometimes and there is also what could be called spill, where a message would go to areas that are not actually receiving part of the rollout.

Senator BIRMINGHAM: You are undertaking some fairly specific adverts though. I have copies of adverts that have appeared in the Whitsunday Coast Guardian, the Home Hill Observer and the Ayr Advocate. My understanding is that your initial rollout does not cover Ayr, Home Hill, Proserpine, Cannonvale or Airlie Beach—the primary areas of these—

Mr Cooney : I do not know the specific publications but I do know that the way media is often run in Australia they can be syndicated and can reach multiple areas. Again, I do not know the specifics of that, but that may well have happened.

Senator BIRMINGHAM: So it may be in that case that you have bought advertising space targeting one newspaper but it runs in multiple newspapers to get you in the one you want?

Mr Cooney : It may have, yes.

Senator BIRMINGHAM: Can I come to a nice full-page ad for the NBN being on its way in western Adelaide, with ‘western Adelaide’ printed at the top and citing 22 communities in western Adelaide along the bottom, that appeared for several weeks in a row in the Eastern Courier Messenger in Adelaide.

Senator Conroy: It could have been the same thing; it could have been syndicated.

Senator BIRMINGHAM: No, it would not be in this instance. I can be quite confident that different advertising space can be bought in different parts of the Messenger newspaper across Adelaide. Who is in charge of the media placement there? That is a fairly simple—

Senator Conroy: That is the best you have got?

Mr Cooney : I would be responsible for that.

Senator Conroy: Half-past 10 at night and that is the best you have got.

Senator FISHER: It is a waste of money.

Mr Cooney : It is a waste of money, as Senator Fisher rightly puts it. And it does not, of course, inspire confidence in the NBN when these types of things come up—when communities have adverts in their local papers that are meant to be targeting their local campaign and are not relevant to their local campaign.

Senator Conroy: People in the east have been demanding the NBN as well.

Senator BIRMINGHAM: Has NBN Co identified any of these particular problems, aside from what you say is the syndication issue, Mr Cooney?

Mr Cooney : Just so that I understand, what was the issue?

Senator BIRMINGHAM: Have you identified any issues with your advertising buying and placement, aside from the overlap or syndication issue that you raised.

Mr Cooney : There may be individual problems here and there but the biggest challenge and the biggest efficiency is the one that I mentioned at the beginning, which is the nature of the rollout—that this is a third of the country but spread out. That is the biggest challenge and the biggest learning.

Senator Conroy: But I am sure we are happy to take on board the points you have raised.

Senator BIRMINGHAM: Has NBN Co been making unsolicited calls to community organisations seeking community advocates for the NBN?

Mr Cooney : I do not really know the context of what you are asking. We do reach out to communities. We do not reach out for advocacy. We usually reach out in terms of—I would need to know a bit more about the type of institution and then I can tell you why we would be reaching out, because we do reach out to several different types.

Senator BIRMINGHAM: Do you make unsolicited calls to community groups, community leaders or the like to make contact and try to engage them on the NBN?

Mr Cooney : Absolutely, and we intend to do more. I think it is really important that we engage—

Senator BIRMINGHAM: Who do you target in that respect?

Mr Cooney : If it is representatives of the community they are representatives we have been shown are able to best engage and represent that community’s interest.

Senator BIRMINGHAM: Can you give me some examples?

Mr Cooney : Universities, councils—a real poster child for this is the council in Kiama. They have really looked at the way they service and serve their local community, not just in terms of encouraging the NBN but also in the way they roll out their own council services.

Mr Quigley : A consequence of that is we have a take-up rate of 34 per cent in Kiama—

Mr Cooney : Over a third of the population.

Mr Quigley : which is unprecedented in a rollout of fibre around the world. When we talk to telcos around the world and they hear that we have in the community 34 per cent take-up after this period of time they are staggered.

Senator BIRMINGHAM: So are you contacting leaders—

Senator Conroy: It is also possibly—just to give you a bit of a distraction—the department, which also has a large community based campaign online. We contact organisations and groups on the same sort of basis, reaching out.

Senator BIRMINGHAM: Is that purely an online based campaign the department runs?

Senator Conroy: If we are phoning them it might be more than online.

Mr Harris : It involves contact of the kind I think you described earlier.

Senator Conroy: So it could be either of the organisations.

Senator BIRMINGHAM: Are either of you targeting not-for-profit groups, local charities, local service clubs—how far down community leadership organisations are you getting to try to engage NBN community advocates.

Mr Harris : In our case that is quite possible. As I said, those are the sorts of groups we would be looking at. We are looking at groups representing people with non-English-speaking backgrounds because it is a better way of penetrating those groups sometimes than putting ads in the mainstream media about how to, for example, make inquiries on the 1800 numbers that were read out earlier. We do the same thing with Indigenous advocates. We would be contacting community groups in that way. For those groups that are prepared to take on the role we would offer an information kit that they can use for this purpose and, as I mentioned earlier, for non-English-speaking background groups we run a meeting with them.

Senator BIRMINGHAM: So it does sound like it could be you, Mr Harris. The information kit would perhaps lob on the doorstep with 350 copies of Connecting Australia, five USB sticks preloaded with information, including fact sheets and a brochure about the NBN, a document compendium for your own use—

Mr Harris : It sounds like us.

Senator Conroy: It is a fabulous—

Senator BIRMINGHAM: And two copies of each of the DVDs ‘At Home with the NBN’ and ‘In Business with the NBN’.

Senator Conroy: Yes, that is us.

Mr Harris : They are our DVDs, which we can give you a copy—

Senator Conroy: Would you like some?

Senator BIRMINGHAM: No thanks.

Senator Conroy: While I have got you on the no thanks, would you like to announce which suburbs you would insist should not be connected to the NBN?

Senator BIRMINGHAM: Thanks, Minister. I will continue with my questions if you do not mind.

Senator Conroy: Just specify your house, your suburb—just say, ‘You shouldn’t have the NBN in this area.’ Come on, give us a suburb.

Senator BIRMINGHAM: Chair, are you going to call the minister to order?

CHAIR: The minister is quiet at the moment.

Senator BIRMINGHAM: Excellent. Mr Harris, how many of these information packs has the department sent out and how many are you seeking to send out?

Mr Harris : We are seeking 150. I do not know how many we have sent out to date. The one I know best is the non-English-speaking background program that is underway. I cannot give you a number as to how many we have toward that 150 total but we can provide that to you on notice.

Senator BIRMINGHAM: Across how many regions is that 150?

Mr Cooney : It is across Australia.

Senator BIRMINGHAM: Across all of the rollout areas of the NBN?

Senator Conroy: Mr Cooney has some further information for you.

Mr Cooney : Senator Birmingham, you asked about the types of organisations—charities and so forth. It probably would not be organisations like charities. It is more areas that represent communities or groups within communities. It is also worth noting that it is far more likely that they have approached us than we have approached them. One of our challenges is the amount of interest that we have from communities and from special interest groups. A good example is—I may get the name wrong but I think it is Epilepsy Action Australia. They reached out and they were very passionate about what the NBN could do for suffers of epilepsy, who often suffer in silence because of embarrassment, to reach out to doctors. One of the big things they are excited about is being able to do some self-diagnosis and even some treatment online, to be best informed and then to be able to reach out, they believed—and they had approached us. We gave them the information, we passed them on to the department as well and I believe they probably gave them more information. They saw this is as a crucial part of continuing to service the people they represented.

Senator BIRMINGHAM: That is a good example of someone contacting you. But, Mr Harris, how are you targeting your 150?

Mr Harris : I am not actually doing the targeting. I will ask Ms O’Shea.

Ms O’Shea : The department, as we have indicated, has looked at case studies that NBN Co has. We are also working with a public relations firm who are looking at people who may have an interest in finding out more about the NBN and representing people in their community. For instance, on the non-English-background front the agency has been contacting multicultural officers who are based in councils and working with them.

Senator BIRMINGHAM: So a PR company is doing the targeting. And what specifically is being asked of your 150 NBN advocates?

Ms O’Shea : I would need to provide that in detail separately on notice. But at this point in time we are asking them whether they are interested in receiving more information about the NBN.

Senator BIRMINGHAM: Will they be paid anything.

Ms O’Shea : No.

Senator BIRMINGHAM: So they are simply being encouraged to go out and spruik, essentially. Mr Quigley, nearly all of the potential RSPs, it seems, have made submissions to the ACCC expressing concerns about the SAU. Vodafone Hutchison says it does not result in effective or satisfactory resolutions of disputes and will create a significant bias in dispute resolution in favour of NBN Co. Macquarie says that 30 years is simply too long, based on the dynamic nature of the communications sector, which is driven by ongoing technological developments, and that a 30-year term is exacerbated by inadequate provisions in the SAU regarding the review of the SAU and the discretion that it afforded to NBN Co regarding the review of particular aspects of the SAU, together with the SAU’s inadequate regulatory oversight. A joint submission from Adam, iiNet, Internode, Primus and TransACT has equally highlighted a range of things. It particularly highlights concerns that the SAU does not provide for adequate regulatory oversight in respect of issues relating to price terms; that it gives too much discretion to NBN Co in setting non-price terms and that there is no guarantee that in those non-price terms NBN Co will be appropriately balancing competing interests; that there is lack of clarity in regard to the extent to which non-price term provisions in the SAU will override alternative regulated terms; and that carve-outs and limitations apply to too great an extent to regulatory recourse mechanisms that are available to them. As I am sure you know, I could go on. I could quote from APPT or Optus or the CCC or Telstra, of course. It seems you have done a wonderful job uniting the retail side of the industry in terms of very similar concerns. Does NBN Co think that it has got it wrong or overstepped the mark in that regard?

Mr Quigley : Before I pass to Mr Hassel, who is running the regulatory side of things and talking also to our potential customers and existing customers, let me say up front that this is no surprise at all. At this point in time you would expect each and every one of those service providers to be trying to pursue their optimum commercial interests. If I were in their position I would do exactly the same. They understand there is a complete restructuring of the industry to try to get away from the old model, which was dispute ridden—

Senator BIRMINGHAM: You are pursuing your optimal interests for NBN Co as well.

Mr Quigley : What we are trying to do is make sure that we protect our shareholders’ interests on behalf of the Australian taxpayers. I repeat, our model in NBN Co is not to maximise profit. Our job is to provide the best possible broadband service we can across the nation at the lowest possible prices. That is what our definition of success is.

Senator BIRMINGHAM: And achieve a rate of return.

Mr Quigley : And achieve a rate of return for the Australian taxpayer ultimately. We are paid by the government to try to look after those interests. Do those interests always align with those of access seekers? The answer is no. We are making sure we will protect our interests. Having said that, I think it is also fair to say that we are making good progress. We are having very regular discussions with the ACCC. Mr Hassel may want to reflect those discussions. We do have to deal with quite disparate views from different parts of the industry at different times.

Mr Hassel : There are a couple of points to make there. Two things run in parallel. One is the special access undertaking and one is our wholesale broadband agreement. Those two things are very closely aligned. We signed a short-term wholesale broadband agreement at the end of November last year. We are going through an extensive consultation process with industry on how to improve that agreement. At the same time we lodged our special access undertaking. The ACCC has gone through a process to get industry feedback with regard to that special access undertaking. We are taking that feedback for both the special access undertaking and the wholesale broadband agreement and amending as we go through in a number of different streams, together with the industry, with the aim of reaching as satisfactory an outcome for everybody as we can by November.

Senator BIRMINGHAM: I have one other question, highlighting two points of concern that seem to come through consistently. One is the 30-year nature of the undertaking. The other is the more principles based approach of the undertaking and particularly what seems to be a very easy way in which almost anything would fit within those principles, in terms of an absence of price details or detailed service undertakings, in particular, or time frames. Can you quickly respond to those concerns and why NBN Co has decided on this very different pathway for the SAU?

Mr Quigley : I suggest that the secretary may be better placed to answer this question.

Mr Harris : Certainly in the case of the principles based arrangements, I think the uncertainty around the principles is shared by all of us. The ACCC has put this concept forward, to the best of my knowledge, and thus the industry, NBN Co and ourselves are looking at the principles and asking whether these create a sustainable SAU. But people are looking at it from entirely different perspectives. The principles are a matter on which more work is required by everybody, not just NBN Co, in our view. The fundamental factor behind the 30-year agreement is that if NBN Co is to raise the debt that we spoke of earlier it will need to be able to provide surety to the people who provide the debt on the likelihood of return of those funds—that chance of them getting their funds back. That means you do need a pricing agreement structured to provide that level of certainty. So the going in intention behind the 30-year agreement is to match the concept of the 30-year corporate plan and to match the return of the bond providers’ money. Anybody who has been involved in bond raising will know that this is an essential characteristic. That is the rationale behind the 30 years. The problem with the 30 years ultimately is, as everybody in a commonsense fashion would say, that nobody knows what life will be like in 30 years time. That is what has to be currently resolved, again in the discussions that the ACCC is managing.

Senator BIRMINGHAM: And it is potentially trading off the 30 years security for the bondholders and NBN Co against the RSPs’ need for their own—

Mr Harris : Exactly. It is quite a reasonable position that no-one knows what life will be like.

CHAIR: Senator Bushby.

Senator Conroy: Which parts of Tasmania should not get the NBN? Would you like to nominate them?

Senator BUSHBY: Minister, I will ask questions in the few minutes that we have. Last estimates I asked about the technology used in the NBN trial sites and you confirmed that it would have to be replaced. I asked questions about that on notice and I received the answers just yesterday. In those answers you say the estimated cost to retrofit premises with the NEC boxes will be about $1.2 million.

Mr Quigley : We are not replacing with the NEC boxes; we are replacing the NEC boxes.

Senator BUSHBY: Replacing the ones with the ones that are fitted with an NEC—

Senator Conroy: It is the NEC that is there now.

Senator BUSHBY: So the cost to retrofit premises fitted with NEC boxes will be $1.2 million?

Mr Quigley : That is correct.

Senator BUSHBY: How many premises were installed with NEC boxes in each of the three trial sites?

Mr Quigley : Approximately 700.

Senator BUSHBY: How much in each of the three? Do you have a breakdown between the three trial sites?

Mr Quigley : Yes. Midway Point would be a bit over 300, Scottsdale about 150 and Smithton a bit over 200.

Senator BUSHBY: Are they in the process of being replaced yet? If not, when will that start?

Mr Quigley : I think we are committed to complete that by the end of this calendar year. The people in those three communities are getting a service which—they probably will not be able to tell the difference.

Senator BUSHBY: But Telstra, as I understand it, will not be offering their full services in those locations.

Senator Conroy: I think you should ask Telstra.

Senator BUSHBY: I have a copy of a media release from Telstra where they say—

Senator Conroy: I think you should ask Telstra head office.

Senator BUSHBY: Does the $1.2 million estimated cost to retrofit them include the total cost of the boxes and also the labour of fitting them?

Mr Quigley : I believe so. We will check on that but I believe that it does.

Senator BUSHBY: Senator Conroy, last estimates you were not aware that Telstra were not intending to offer their full services—

Senator Conroy: As I said, I think that you should seek some information from Telstra.

Senator BUSHBY: Have you had any further discussions with Telstra about that issue of no services in Tasmania?

Senator Conroy: I think there were some subsequent clarifications. At this point I would call a Telstra person to the table to clarify it for you but I do not have the clarification handy.

Senator BUSHBY: You are not sure whether you have had further discussions with Telstra on this issue?

Senator Conroy: I am confident that I have had further discussions and that there was a clarification; I just do not have it handy.

Senator BUSHBY: So you cannot offer any further light at this point?

Senator Conroy: I could but he has served his time at the table and I really am loath to call a non-officer to the table. But Telstra has a representative here from its head office and I am sure you could seek that when we close in a few minutes.

Senator BUSHBY: Are you confident that—

Senator Conroy: Nobody is missing out. At the moment the service that you are worried about is not on offer yet.

Senator BUSHBY: In Tasmania or—

Senator Conroy: Across the country.

Senator BUSHBY: They are not offering them in Tasmania until that retrofitting is complete.

Senator Conroy: As I have said, you should talk to Telstra head office. But the service that was potentially not available is the gigabit service, which is not offered anywhere in the country.

Senator BUSHBY: Telstra was saying that they will offer commercial services over the NBN in Tasmania ‘when we have confidence that the infrastructure there enables us to ensure the same high-quality customer experience that we deliver today and which we intend to deliver on the mainland’.

Senator Conroy: All of the other ISPs seem to be managing quite well. I invite you again to have a chat with Telstra’s head office.

Senator BUSHBY: Are you saying that Telstra has concerns about the technology elsewhere and that is why they are not doing it?

Senator Conroy: I think Telstra has a whole range of customers on the network—perhaps you could put these questions to Telstra rather than—

Senator BUSHBY: I am putting them to you. I am putting them to the NBN Co, which is—

Senator Conroy: You are asking me what Telstra’s opinion is and I am not in a position to—

Senator BUSHBY: I am not asking that; I am asking whether you are aware that they will be delivering these services in Tasmania.

Senator Conroy: As I said, my understanding is that a clarification was issued. I invite you to find out what the clarification was.

Mr Hassel : As I understand the question, Senator, I think you are asking if Telstra are promoting NBN based services into Tasmania. The answer to that is yes. They are active in doing that. We have been working with them on putting services into homes in Tasmania and the Tasmanian footprint.

Senator Conroy: We have a couple of other clarifications.

Mr Cooney : The question of when the truck will be in Canberra—it is 18 and 20 June. The two DJs were Ray Hadley and Andrew Moore. And a correction: 24 DJs read it straight and two did not.

Senator FISHER: I thank NBN for bringing brothers in arms. I think it was very constructive.

Senator Conroy: I would like to thank a couple of people who have kept me entertained during the evening, who are not the people on the other side of the table—

CHAIR: That concludes the committee’s examination of the Broadband, Communications and the Digital Economy portfolio.

Committee adjourned at 23 : 01