SHAW, Mr James, Director Government Relations, Telstra Corporation Limited

CHORAZYCZEWSKI, Ms Yolanda, Acting Deputy Director Regulatory Affairs, Telstra Corporation Limited

[16:15]

CHAIR: For the rest of the afternoon we will deal with the Telecommunications Legislation Amendment (Fibre Deployment) Bill 2011. I welcome representatives of Telstra. Although the committee does not require you to give evidence under oath, I advise you that these hearings are formal proceedings of the parliament and warrant the same respect as proceedings of the respective houses. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. Before we proceed, I remind everyone that Telstra is appearing today to deal with only one thing, and that is the fibre deployment bill. The committee will have the chance to question Telstra on other matters on many occasions at other times.

Mr Shaw, would you like to make an opening statement to the committee?

Mr Shaw : I was going to make an opening statement, but, in view of the time, to assist the committee, perhaps I could table that. I will just make two points. One is to reiterate what you just said in terms of the commercial negotiations that are happening. We are not in a position to discuss any aspect of that at this point in time, given the sensitivity of those negotiations. The other point I would like to make is that I recommend to the parliament that this bill be passed. We think it is important to get the necessary certainty to provide a regime in which we can continue to roll out infrastructure in greenfield areas and deliver services to consumers.

CHAIR: Yolanda, did you want to say anything?

Mr Chorazyczewski : No, thank you.

CHAIR: I noticed that you were both here when we just heard from GFOA. Would you like to make any comment in response to anything just presented?

Mr Shaw : We would be responding on the run. We would prefer to review the Hansard and, if there are particular issues of concern, we could come back to the committee. Generally, GFOA advocated for their constituency, as you would expect them to do, and at this point we are not going to choose to take a point on anything that they said. We will review the Hansard and, if there are issues of concern, we will come back.

CHAIR: Senator Macdonald, because you were cut short last time, would you like to—

Senator IAN MACDONALD: Mr Turnbull has to leave.

Mr TURNBULL: Thankyou Senator Macdonald and Mr Chair. The issue with this bill that has been brought to many of us is where greenfield operators described their concern that they are operating on a very unlevel playing field, vis-a-vis the NBN. You heard that and you want to reserve your comments on that. We understand that you are no longer in the business of connecting people's premises to fibre in new developments. Is that right?

Mr Shaw : No, that is not correct, Mr Turnbull. Where we have existing contracts with developers for the deployment of fibre, we will honour those contracts.

Mr TURNBULL: Once they are fulfilled, you will be out of that business—is that right?

Mr Shaw : Once they are fulfilled, we will be caught up with the provisions of the network access bill that the parliament passed recently which will require us to seek an exemption if we were to deploy high-speed broadband services over fibre in new estates. We are yet to draw a conclusion internally as to whether we will go down that path.

Mr TURNBULL: Fair enough. You said you would like to have the bill passed, but do you have any comments to make about the criticisms that have been made about the bill by the competitive fibre people?

Mr Shaw : Only to acknowledge that they are advocating for their business, which we respect, and they are entitled to the positions they put forward. Our focus has really been about where we stand in this debate at this point in time rather than about the issues of the other carriers. We would rather not be drawn into a public discussion about their views of the bill. Our focus has been around our role in all of this and our business.

Senator IAN MACDONALD: It was suggested to us by the last witnesses that you had done some sort of deal with NBN Co. I hear that you cannot discuss that, but is it right that you have come to some arrangement with NBN Co.?

Mr Shaw : In respect of greenfields developments, the position, as I said to Mr Turnbull, is that we are honouring existing contracts and assessing whether we would deploy further fibre under an exemption under the network access legislation that was passed recently. That is basically where we stand in respect of—

Senator IAN MACDONALD: That would suggest that you have not made an arrangement with NBN Co.

Mr Shaw : We are operating under the policy statement that the minister has put out in terms of the various responsibilities of us and NBN Co. Hence, we are keen to have the legislation passed in order to give the statutory certainty to that policy statement.

Senator IAN MACDONALD: In the past, Telstra had its own—what was it called?

Mr Shaw : Velocity.

Senator IAN MACDONALD: Velocity; I was thinking of Virgin's frequent flyer points! Does Velocity now exist?

Ms Chorazyczewski : It exists in that we have entered into numerous contracts to deploy fibre in greenfield areas and we have to honour those contracts and keep rolling out fibre under those contracts for those developers in those developments.

Senator IAN MACDONALD: Are Velocity employees Telstra employees or—

Ms Chorazyczewski : That is correct. It is just a brand name; everything else is Telstra.

Senator IAN MACDONALD: All right. It has been suggested to us that the new arrangement will be far more expensive. To put it another way, if NBN are going to do it in whichever way they choose, it has been suggested that there will not be a separate cost to NBN; it will be included in their general operations. But there is a cost, of course, for everything. Would you care to comment on whether the ultimate cost of allowing NBN to do it as opposed to maintaining the existing arrangement is accurate?

Ms Chorazyczewski : It is accurate in that, under the existing arrangements, developers would pay to put fibre

into their development. If it is fully government-subsidised to put the fibre into the development, it is very difficult for a private entity to compete with that.

Senator IAN MACDONALD: Except that, as I say, there is no such thing as a free lunch, and, although the government include it in their thing, it means that NBN is—if I can put it this way—less able to return a profit to the taxpayers because they are adding this in as a free service. That would be correct, wouldn't it?

Mr Shaw : I think we are getting into areas around the NBN business case that we are not really qualified to discuss.

Senator IAN MACDONALD: Okay. Actually it is obvious, so perhaps I did not even need to ask it.

Senator XENOPHON: The Greenfield Fibre Operators of Australia expressed satisfaction in the following terms:

Without comment by the Minister but after substantial disclosure of intellectual property and pricing information by GFOA members, NBN Co. has now decided to toss out the notion of an expert panel of providers and has appointed subcontractors to those existing experienced builders and operators.

I am reading directly from their submission. We have heard from the GFOA where they have said that they are seeking legal advice in terms of any potential legal action against, presumably, NBN Co. and also seeking advice from the ACCC. Do you foresee any circumstances in which you would have access to any of the intellectual property that the GFOA referred to in their pricing information either directly or indirectly?

Mr Shaw : I find it difficult to envisage circumstances where NBN Co. would share that information with us, Senator.

Senator XENOPHON: Not even in an indirect sense?

Mr Shaw : Without knowing what the indirect sense is, our negotiations with NBN Co. have not involved disclosure of that sort of information—

Senator XENOPHON: Perhaps I can put it to you another way. NBN Co. now has access to commercially sensitive price information from the Greenfield Fibre Operators association according to the evidence. They have been quite explicit about it in their submission and in their evidence. Will that of itself change the nature of any negotiations between NBN Co. and Telstra?

Mr Shaw : Not from a Telstra perspective, no.

Ms Chorazyczewski : Telstra was a respondent into that request for proposal to NBN Co. as well. We disclosed information to NBN Co. in that process as well.

Senator XENOPHON: You do not see that there would be any prejudice to the Greenfield's operators in NBN's negotiations with you about greenfield sites by virtue of disclosure of information—

Mr Shaw : We are not in negotiation with NBN Co. on greenfield sites.

Senator XENOPHON: But in an overall sense you do not see that the disclosure of information could have any impact at all on any decisions that Telstra would make.

Mr Shaw : No, because we are not privy to that information.

Senator XENOPHON: But whilst you are not privy to it, it could impact on the way that NBN Co. approaches you in terms of this whole issue.

Mr Shaw : I suspect that is a question better put to NBN Co. I leave it to you to make your own conclusions about how they might behave but I cannot speak on their behalf.

Senator XENOPHON: All right. I want to raise the issue I have been pursuing all day with the CVC, the connectivity virtual circuit, and the negotiations. The concerns expressed by Simon Hackett of Internode that the usage fee would basically prejudice smaller operators—are you involved in negotiations with NBN Co. in relation to what an appropriate CVC threshold would be?

Mr Shaw : Not that we are aware of.

Senator XENOPHON: But it would be relevant. Telstra would have an interest as to what the threshold would be for the CVC.

Mr Shaw : Issues around the NBN pricing and the prices they are going to put into the market are not the subject of our commercial discussions with them around the migration of traffic onto their network and the use of our ducts and other infrastructure.

Senator XENOPHON: So you are not concerned what the threshold will be for the CVC?

Mr Shaw : We are always concerned about what price we might have to accept in the market but that consent is no more than any other commercial entity that is going to purchase from NBN Co. It is a reasonable concern of any participant in the market.

Ms Chorazyczewski : NBN has made what it proposes public and we have responded to NBN Co.'s calls for submissions.

Senator XENOPHON: Further to that you have a different perspective through NEXTDC founder, Bevan Slattery, who made $373 million, and good luck to him, from selling Pipe Networks to TPG Telecom last year. He has been advising people to invest in Telstra, his old enemy, on the basis that NBN Co. will fail because the CVC charges will actually make it uneconomic for any player to make a profit. What is Telstra's position on that?

Mr Shaw : Mr Slattery is quite entitled to his view.

Senator XENOPHON: What is your view of Mr Slattery's view?

Mr Shaw : I actually have not formed a view personally. If the company had something to say further about Mr Slattery, I could come back to you on that.

Senator XENOPHON: I would like to know what Telstra's view is on Mr Slattery's view. He is actually saying we should buy shares with you guys at the moment.

Senator CAMERON: I do not think Mr Shaw would complain about that.

CHAIR: Senator Cameron, do you have a couple of questions to wrap up?

Senator CAMERON: I understand that you are in what has been described as some very complex negotiations. If it is not appropriate to ask these questions then I do understand, but Mr Turnbull has said to the media at lunchtime today that the government should buy your copper network. What value does Telstra put on the copper network?

Mr HARTSUYKER: That is not what he said.

Senator CAMERON: I was there.

Mr Shaw : I do not know whether somebody put a figure out to be quite honest on the value of the copper network.

Senator CAMERON: Would it be in the billions?

Mr Shaw : Definitely in the billions.

Senator CAMERON: Could you take that on notice to see whether you could give us more information?

Mr Shaw : In some ways it depends on how much of the copper you want and other things like that. There is an element of how long is a piece of string in that question. I will go back and see whether we have made any public utterances around the cost of our network, the price of our network and what we can get to.

Senator CAMERON: And also the maintenance costs of the copper network—is that a public position?

Mr Shaw : I do not believe so but again I will go and check with our finance people.

Senator CAMERON: It is not an insignificant amount of money is it to maintain your copper network?

Mr Shaw : It is not. It is not an insignificant figure to maintain any network the size of ours—a copper network or other.

Senator CAMERON: Thanks. Would it be in the billions to maintain?

Mr Shaw : Off the top of my head I would say it would have to be, but I would like to seek some advice on that before anyone was to draw a firm conclusion.

Senator CAMERON: Thank you.

Senator IAN MACDONALD: Velocity was a competitor but in the same business as GFOA, they say that GFOA people were providing internet, voice, data services et cetera whilst the wholesale price was far less than NBN Co. Did you do you agree with that? Were Velocity's prices when they were doing the same things as GFOA far less than NBN Co.'s?

Mr Shaw : The prices that we put out were retail prices which would make them difficult to compare with wholesale prices.

Senator IAN MACDONALD: You must have been able to identify within your organisation what was wholesale and what was retail.

Mr Shaw : We did not wholesale the Velocity product.

Senator IAN MACDONALD: Velocity doing whatever GFOA did.

Mr Shaw : Many of the GFOA members, and I have to admit I am not privy to the precise detail of all their business plans, but my understanding in the main is that they provided an open access network and other providers retailed on that whereas the Velocity product was a Telstra product that was not wholesale and we did not have other people operating on that network. So there is an element of apples and oranges there.

CHAIR: Thank you very much for attending today to assist the committee. If you can get questions on notice in by 23 May if possible to assist with your view that this legislation is time critical.

Mr Shaw : On a point of clarification we understand that this committee will be reporting every six months on the rollout of the NBN. What is the reporting time frame around this particular bill?

CHAIR: We are trying to report as quickly as possible. We will probably aim at early to mid-June. That makes your feedback as early as possible all the more important.

Mr Shaw : We understand. Thank you.

CHAIR: I hope that if there are any further questions from committee members, Telstra will be able to accept them in writing through the secretariat. Thank you once again for attending.

Resolved (on motion by Senator Cameron):

That this committee authorises publication, including publication on the parliamentary database, of the transcript of the evidence given before it at public hearing this day

Committee adjourned at 16:33