Commsday Melbourne Congress 2012
Good morning and thank you to Grahame Lynch and Commsday for the chance to speak today.
In truth I’d rather talk about something other than the NBN this morning.
Last night I gave a talk about free speech, and my concern over the current Government’s habitual willingness to sacrifice this freedom for other objectives. Senator Conroy’s clean feed, the increased regulation of the news proposed by both media inquries he commissioned, and Nicola Roxon’s recent push for expansive new data interception and retention powers are some of the obvious examples. These are important matters which are more important and better understood in this industry than most.
And there are plenty of other topical issues we could equally usefully discuss:
- Rapid structural change in the media, and what it means for journalism and democracy;
- How to make Government 2.0 more useful and meaningful in Australia;
- Or what we as a nation can do to encourage more innovation, entrepreneurship and technology-based enterprises. I’ve spoken elsewhere on some of these matters.
But there are two very powerful reasons the NBN and broadband suck up most of the oxygen in our public discourse about communications.
- The first is that the NBN affects every Australian, and consumes 75 per cent of the financial resources used in the communications portfolio over the Budget forward estimates. 
- The second is that broadband was pivotal in the past two Federal elections – as one of a handful of policies where Labor delineated itself from John Howard in 2007, and because the NBN’s appeal in regional areas where broadband is often deplorable, helped keep Labor in office in 2010.
We in the Coalition believe the NBN will again be an important election issue in 2013.
While Labor’s NBN is not how the Coalition would have gone about upgrading broadband if we were starting from scratch, there is no doubt that many Australians support the concept – that’s has been true ever since Labor launched the policy five and a half years ago.
How enduring will that popularity prove to be, I wonder? Since 2007 these supporters of Labor’s NBN have no doubt seen slick brochures, various TV commercials, maybe even the NBN truck. They’ve watched news footage from points around the country of Stephen Conroy ceremoniously pushing big flashing buttons that aren’t in truth actually connected to anything.
But in most cases they haven’t seen any sign of the NBN itself. Even if they live in a housing development with which the NBN Co has a contract to connect, they probably haven’t seen it –they certainly didn’t see it when they hoped to see it.
And incredibly, even if they live in suburbs or towns with utterly inadequate broadband services, many find they are not on the NBN’s three-year rollout plan. In other words, having done next to nothing tangible to alleviate their situation in the past five years, Labor is also saying to these people that they won’t be helped in the period to 2015.
After all, as Michael Quigley frankly admitted at Senate Estimates in October 2011, NBN Co chose the areas which get its fibre network first based on the availability of Telstra dark fibre and exchanges, and agreements with its civil contractors – not on how urgently communities need access to better broadband. 
I consider NBN Co’s failure to give those areas in most urgent need of improved service first priority to be utterly unacceptable and, frankly, something of a scandal given the resources that are being pumped into this project.
If we win the next election our first concern will be to give priority to upgrading these areas.
Two weeks ago I launched an online survey www.fasterbroadband.com.au which anyone in Australia can complete to tell us about broadband in their area and test their speed. Over 13,000 people have responded so far, and it is available for another six weeks.
Already we’ve identified areas not on the NBN three-year rollout plan which clearly should have been.
We encourage everyone in Australia – but especially anyone with poor quality broadband – to do the survey, which can be found at: www.fasterbroadband.com.au
Let me diverge for a moment and make some remarks about the economy, rather than communications.
For at least 12 months the evidence has mounted that Australia’s economic circumstances will be far less benign in the years ahead than the decade past. Commodity prices are ebbing and China’s growth has slowed. Employers are subdued and consumers are reluctant to open their wallets. The Treasury tells us revenues won’t rebound to pre-GFC levels for years, while Ross Garnaut warns that simply maintaining our current living standards will be a struggle.
Does the nation hear this sombre message emanating from Canberra? Not from the Government, that is for sure.
The Gillard Government has instead unveiled a deluge of spending: new dental care, more money for schools, the disabilities insurance scheme, all worthy but none of it cheap.  We’re assured the Budget will be in surplus, but the harsher conditions and tougher choices which very likely to lie ahead are never discussed. Rather than an urgent national focus on bolder reforms, broader-based growth and higher productivity, we still hear rhetoric about “spreading the benefits of the boom”.
In short there’s a significant and growing gap between reality, the facts on the ground, and the political theatrics in Canberra. That gap, bluntly, reflects a refusal to acknowledge or take heed of the facts, much less adjust policy commitments or political narratives to be consistent with them.
What does this have to do with communications?
Regrettably, the same disconnect – a heroic disregard for facts, evidence and accuracy – is increasingly a feature of the broadband debate. To hear Senator Conroy or media apologists for the NBN, you’d think the program is moving along swimmingly.
You’d think nobody in Australia was in urgent need of a broadband upgrade, that nobody had been disadvantaged by the fact that after five years in office Labor had managed to connect a mere14,000 premises to its new fixed line and interim satellite networks.
You’d think that the sight of NBN Co spending like Louis XVI and showing just about as much respect for the needs and wishes of Australian taxpayers as Louis did for his was all part of the masterplan. Although the Bourbons never to my knowledge ordered their subjects to wear red underpants on their heads.
Well, this morning I want to leave the Versailles which Stephen Conroy and Michael Quigley apparently inhabit and remind you of some facts, of what the evidence tells us.
Fact: When the Labor Party won office in 2007 there were on the order of 2 million Australian households and businesses which could not get fixed line broadband service capable of playing a YouTube video. 
Fact: Five years later, there are still about 2 million households and businesses in this situation. And even if the NBN projections are met, there will also be 2 million at the time of the next election. To the extent there’s been any tangible reduction in this number up to now due to improved fixed line service, it has been the result of Telstra’s deployment of its Top Hat devices – not of any action by Labor or the NBN Co.
Fact: As of mid-2013 the NBN Co now says there will be 54,000 premises connected to the NBN Co’s fibre. This is one tenth of the forecast eighteen months ago by NBN Co and the Government. A further 38,000 premises – a third less than originally forecast – will allegedly be connected to the interim satellite or fixed wireless networks.
Fact: Since the first premise was connected to the fibre network two years ago, the NBN Co has connected premises at the rate of 6 per day. In order to meet its forecast it will have to increase that rate of connection to 6,800 per day.
Fact: As of mid-2013 about $8.6 billion in equity will have been committed to NBN Co. If we consider the forecast 92,000 connections at that date (only 54,000 of which are on fibre) , the capital subscribed per connection achieved works out to be about $90,000.
Fact: From November 2007 until December 2010, Labor was in government but its NBN had no workable, properly costed, publicly released business plan – a fact not once acknowledged by those who are loudest and most insistent in their demands for the Coalition in opposition to publicly release a fully costed alternative plan without access to any of the NBN Co’s contractual or technical information.
Fact: The NBN Co refuses to tell us what its fibre network is costing per premise to roll out – Michael Quigley claims the figure is too commercially sensitive to reveal.  Curiously I have had no difficulty learning the average cost of passing and connecting premises from telcos in other parts of the world – only in Australia is this basic information a State secret. But if we simply divide through the $2.2 billion in accumulated capital expenditure on the FTTP local and transit network projected by mid-2013 by the 341,000 premises passed by fibre projected by mid-2013, the cost per premise is $6,400. That is more than twice as high as any previous high-volume fibre rollout anywhere in the world. It is almost three times the NBN Co’s estimated budget.
Is this metric unfair, given it lumps together transit and local access capital expenditure? Possibly.
But if you don’t like it, then here is a suggestion: tell me precisely how we should instead measure NBN Co’s performance and cost structure. Tell me how the taxpayers of Australia should obtain more complete and more accurate information about these matters, given Michael Quigley has refused to provide it to Parliament. Tell me exactly what basis you have for any alternative judgement you may have reached about the efficacy of NBN Co’s fibre rollout.
Because if you know more about this matter than the Parliament has been told, more than Senator Conroy and his team at NBN Co choose to reveal, more than the NBN Co’s own data and forecasts tell us, I’d genuinely love to hear from you. I’m sure we all would.
But if you want to assert that Versailles is in fact being built on a shoestring, on a budget so frugal it actually renders fibre to premises economically viable without massive implicit subsidies, yet you can’t provide detailed, logical responses grounded in empirical evidence to these questions, then you will understand why we find your assertions unpersuasive.
Because contributions to the debate based on conjecture, hope, self-interest and blind faith in the heroic forecasts of an organization yet to meet a single one of its own deadlines are not good enough.
The hopelessly delayed schedule is not the only place where sheer unreality coloured by partisan theology has become a feature of the NBN debate.
Let me give you four examples.
Two weeks ago I was accused of, and I quote, “slandering” Michael Quigley by expressing the opinion that, fine executive though he may be, he was not the right choice for NBN Co because he hadn’t previously managed either the deployment or day-to-day operation of a telecommunications network. 
Broadly NBN Co has two tasks – to build the NBN according to the budget, coverage objectives and specifications set by Government policy, and to then operate it as a shared, wholesale-only local access network.
Mr Quigley’s career was spent at a vendor of networking equipment, where he was extremely successful. The fortunes of a networking vendor depend on designing, bringing to market and supporting excellent products that meet the needs of customers, and persuading carriers to buy them.
Mr Quigley has not worked for a telecommunications carrier. He hasn’t ever been responsible for a network rollout, or an operating telecommunications business. Nor as it happens have any of the current Directors of NBN Co – there, we have five former bankers, two former McKinsey consultants, two former equipment vendors, but no former telecom executives.
The most recent appointment, Dr Kerry Schott, is probably the best qualified of the lot, as she has run a large public utility and overseen the construction of several large projects, but it was a water company, not a telco.
In my view this has contributed to NBN Co setting for itself milestone after unrealistic milestone that it has abjectly failed to achieve.
It has contributed to NBN Co’s culture of gold-plating and excessive spending, because if capital is no constraint and those supervising the enterprise are not directly familiar with its task, the safest option is to choose the most costly option, and the easiest way to deal with mounting pressure and slipping schedules is to throw money at them.
A second example: for criticising Labor’s current version of the NBN and committing the Coalition to completing the NBN by changing the specifications (back, incidently to those which the NBN planned to use between 2007 and 2009) I am accused of ‘lying’ by using the very name ‘NBN’. As though NBN is a trademark owned by the Labor Party.
As though the stipulation that NBN be only used to refer to an FTTP network was handed down on tablets of stone from the mountain.
As though there was no other NBN in the world, and the two years during which Labor’s NBN was also committed to a FTTN rollout never happened.
A third example of fantasy triumphing over fact is the tired refrain we constantly hear from the pro-NBN participants in the debate that by utilizing parts of the copper network, the Coalition’s proposed changes to the NBN will ‘lock in’ high copper maintenance costs.
As I’ve pointed out countless times, Senator Conroy has already locked in a fair chunk of these costs in – for the next 20 years at least, thanks to the contract for the USO he signed with Telstra earlier this year.
Let me quote Grahame Lynch on this matter:
“Witness this week’s debate about the allegedly high maintenance costs of FTTN compared to FTTH, sparked by BIS Schrapnel and fanned by business commentator Alan Kohler. Under the current NBN plan, the most expensive part of the copper network—that in rural and remote Australia—will be retained and funded by industry levies amounting to nearly $300m annually—nearly half the alleged cost of maintaining the entire national copper network today.
I have never seen this point acknowleged by the likes of David Braue, Nick Ross, Renai Le May or the other so called specialist commentators in this space. Or by Alan Kohler or John Durie.
Here is a fourth and final example: the frequently heard canard that the Coalition’s proposal to push fibre closer to end users than it is today, but not all the way to most premises, is a plunge into the unknown, and devoid of any detail or specificity.
To a great extent this is nonsense. After all, we know the approximate budget and timetable such a strategy entails, because a nationwide Fibre to the Node upgrade has been painstakingly costed, and the logistics of rolling it out carefully analyzed, no less than eight times during the past eight years.
A series of evolving designs for such an upgrade were presented by Telstra to the Howard Government in November 2005, August 2006 and August 2007.
My colleague Paul Fletcher’s book ‘Wired Brown Land?’ describes the last of these plans in some detail:
“The Telstra submission revealed that it now planned for an FTTN network which used VDSL, not ADSL2+…It could deliver a target downstream speed of 25 Mbps and a maximum downstream speed of 100 Mbps, much faster than its original proposal. The copper lengths would be a maximum of 800 metres (not the 1.5 kilometres of its November 2005 proposal)…” 
It wasn’t only Telstra doing detailed work on FTTN. The rival G9 consortium, led by Optus, proposed a similar ‘overlay’ network running fibre to 20,000 cabinets to the Howard Government in 2006-07.
Of course after Labor won office in late 2007, bidders responding to its RFP for NBN mark 1.0 were required to deliver a Fibre to the Node network serving 98 per cent of all premises.
Telstra, a re-branded G9 and two other groups again worked up and costed detailed FTTN proposals – this time in accordance with Labor’s coverage and performance specifications – although in Telstra’s case, as we know, the full plan was never submitted, leading to the collapse of Labor’s original NBN policy in late 2008.
In May 2008 Telstra’s then-CEO suggested the total cost of such a network running to 98 per cent of premises would be approximately $15 billion – or roughly three times the funding from taxpayers proposed by Labor.
It is instructive to note that the cost of FTTN is estimated by most industry figures with expertise in this area to have fallen substantially since 2008 – by between 10 and 20 per cent. This reflects the large share of FTTN costs accounted for by electronics, falling prices for many of these components, and the strengthening of the Australian dollar.
In contrast the cost of FTTP is largely driven by the expense of hiring and managing contract labour needed for civil works. In Australia, at least, the cost advantage of FTTN has widened significantly over the past five years.
So any proposition that the approached to upgraded broadband being proposed by the Coalition is a leap into the unknown is nonsense.
Should the Coalition win the next election and the NBN be completed in line with our policies and preferences, will it be entirely identical to any of the FTTN schemes proposed above?
Of course not, for four reasons.
First of all, the NBN or other next-generation access networks will be rolled out or underway in some areas (although many fewer than we may have hoped). The million most remote premises in Australia will be served by fixed wireless and satellite, a strategy which the Coalition has always supported (but under Labor’s NBN delivered in the most expensive possible way by contracts which are likely to be inflexible and in place).
Secondly, technology is constantly advancing and evolving – so the exact costs and exact nodes will be quite different to those proposed five years ago.
Thirdly, we cannot be precise over the terms under which we may obtain access to the D-side copper from Telstra. While Telstra has made several public remarks which indicate it will approach this matter in a way which makes a mutually beneficial outcome reachable, we cannot negotiate such an agreement from Opposition.
Fourthly and perhaps most importantly,, we do not know what contractual commitments we will inherit or how these may be varied to suit a changed design. And given Senator Conroy’s extravagant rhetoric about ‘locking in” Labor’s NBN, we have every reason to be cautious on this front – although it is our very strong expectation that the Department of Finance, which is a 50 per cent shareholder in NBN Co, will have properly and comprehensively protected the interests of Australian taxpayers and Australian democracy in this matter.
The thorough inquiry we will hold into the management and governance of the NBN Co will put all of these matters beyond doubt.
So if we were in government and working from a clean sheet, we could very easily cost our policy down to the last cent – much more accurately than Senator Conroy has been able to cost his. But we are not. And given so much of the uncertainty we face is in the hands of the Government and NBN Co, I am not going to claim otherwise.
The one thing we do know, and all you know here, is that FTTN is substantially faster and cheaper to deploy than FTTP. That is why so many telcos around the world are deploying it.
One of the more depressing aspects of the technology commentariat here is how little curiosity they show in what is actually going on in other jurisdictions or understanding the different circumstances in each market. In one major European market for example because of the very generous duct infrastructure it has been possible to pass more than 2 million premises with fibre with only ten per cent of the build requiring any civil works – well you would do FTTP wouldn’t you?
So there you have it – the facts. Not all of them are what we might hope or wish. But denying them adds nothing to the debate, and does nothing to actually address the broadband challenges the nation has been confronting for some years, which Labor’s policies have done so little to alleviate.
 Between 2012-13 and 2015-16, the Commonwealth’s equity subscriptions to NBN Co account for $20.1 billion of 27.8 billion of funds used in the DBCDE portfolio. Source: 2012-13 DBCDE Portfolio Budget Statement.
 Michael Quigley, CEO, NBN Co – ‘Evidence to the Senate Environment & Communications Committee’ – 18 Oct 2011, pp.115-116: http://www.aph.gov.au/hansard/senate/commttee/s380.pdf
 Estimates of the total deterioration in the Budget position from new policy commitments made since the 2012-13 Budget range as high as $33 billion over the forward estimates and $120 billion between 2012-13 and 2019-20. See: Jacob Gerber – ‘Labor’s $120bn budget blowout’ – The Australian Financial Review, 30 Aug 2012.
 The McKinsey/KPMG NBN Implementation Study (2010) identified 1.2 million pair gain or RIM lines where ADSL was not accessible (p.190), and another 0.4 million premises in the ‘last 7 per cent’ (p.282) where DSLAMs hadn’t been installed in Band 4 exchanges. In addition there is another imprecisely quantified cohort of underserved premises where ADSL2+ is available but the length of the copper run from the DSLAM is too long to allow reasonable speeds.
 See Senate Estimates October 2011.
 Delimiter 25 Sep 2012: http://delimiter.com.au/2012/09/25/turnbulls-quigley-slander-is-flatly-offensive
 Graeme Lynch, Commsday, 22 Aug 2012.
 Paul Fletcher MP – ‘Wired Brown Land?” – UNSW Press, 2009, p.154.