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Comms Day NBN Rebooted

17th November 2014  |  Comments  |  Blog, Speeches

Introduction

 

Well good morning and welcome to the CommsDay 'NBN Rebooted' conference.

And congratulations to Grahame Lynch and CommsDay for providing the leading forum for a lively but informed debate about the future of this industry in general and, especially today, the NBN in particular.

I wonder, however, whether "NBN Rebooted" is the right term. After all we generally reboot a computer because there has been a crash (well that's apt) but we do so by turning it off and then after a respectful pause, turning it on again.

The theme, I suppose, is one of renewal and starting again. If only it had been or could have been so easy.

The NBN project was certainly, demonstrably, on the wrong track by the time of the election, but we did not stop the project and start again. The process has been more like changing the course of an aircraft carrier. We continued with the construction of the fibre to the premises network, but on a more consistent, professional basis and at the same time proceeded to change the deployment strategy in line with conclusions of the strategic review.

The NBN project over the last year has been a story of continuity and change, the foot firmly on the accelerator but wiser and more experienced hands on the steering wheel.

There have been many changes in the last year and I will discuss some of them in a moment, but the biggest change has been the most basic and in some ways the most obvious.

The Australian Government, as sole shareholder, has enabled the company to do what any successful business must do - focus relentlessly on the needs of the customers.

What do they want? What will they pay for? What, in short, are the service levels customers will value?

The technology platform that delivers those service levels is an important consideration for the NBN Co, but is not of much interest to their customers. As I asked a journalist in Tasmania recently "Do you imagine your readers have any interest in the brand of printing press you operate, whether the paper is delivered on a bike or in a van, let alone what publishing program you use? All they care about is the quality of the product - how you get there is your concern."

And so the NBN Co under Ziggy Switkowski and Bill Morrow's leadership is now refocussed on its customers and their requirements. 

This is summed up in the company's mission statement, which is "to enable the digital economy and close the digital divide" . 

Corporate Plan

 

This morning, the NBN Co released its 2014-17 Corporate Plan.

This is very much an interim document. It does not provide new operational forecasts beyond 30 June 2015. They will be set out in a full three year plan expected to be completed by the company early next year.

We recruited Bill Morrow as the CEO because of his track record in turning around telecom businesses and his experience in building from scratch a large telecom network.

Bill's calm and deliberate leadership, supported by a very well qualified Chairman and board and an experienced and determined executive team, is already showing great progress.

In the last year, the company has finalised key milestones, including:

  • Recruiting a number of key highly qualified senior executives to join the NBN Co team;
  • Publishing, only last week, the business rules which will inform and guide the planning for the multi-technology mix;
  • The renegotiation of key contracts with delivery partners. 

I saw this first hand in Tasmania last week with VisionStream, where the relationship has evolved from one with a narrow focus on liquidated damages to one where both companies are working tightly to improve productivity. 

Many of the lessons learnt from the rollout so far need to be implemented around the country and I am proud to see evidence of this occurring:

  1. the NBN Co is no longer declaring FSAMs 'ready for service' when most of the premises could not be connected at all or in a reasonable time frame.
  2. NBN Co is improving design and planning so that work is done an orderly way with the construction of the lead ins that connected premises following hard on the heels of the construction of the distribution network so that there will no longer need to be dozens of truck rolls for a single street – let alone a single house

David Thodey once described the commercial deal with the NBN Co as the most complex ever signed in Australia's corporate history2.

The amendments to those Definitive Agreements with Telstra (and their counterparts with Optus) are equally complex.

I want to record here my appreciation for the dedication of all those involved, on both sides, and especially the team from NBN Co and the Department of Communications.

It is a long time since I negotiated and documented big commercial deals for a living, and it may be that I cut my legal teeth in simpler times, but I agree with David Thodey - these agreements are certainly the most complex I have ever seen.

While there have been many honest differences of perspective and frank discussions to resolve them, I want to make two really important points about the negotiations.

Firstly, as Telstra has acknowledged in its Annual Report, it has not used this negotiation to try to increase the amount of money it gets out of the commercial framework and does not contemplate any incremental value to Telstra for the transfer of its copper and HFC networks to the NBN Co.  

And secondly, while Telstra has sought to ensure that it is not worse off for very materially amending the DAs, this has not in any way slowed the rollout.

The statistics don't lie: In the previous financial year the NBN Co increased the tempo of the rollout from passing 1,600 serviceable premises a week with fibre in brownfield areas to passing 3,300 serviceable premises a week3. In the current financial year, we will increase the run rate so that the NBN Co is passing 5,900 serviceable premises a week.

In terms of activations, the company is forecasting it will almost treble the number of paying customers in the fixed line footprint, with 385,000 customers expected to be on the fibre networks by June 30.

And this goes right to the heart of the NBN Co operating in a more businesslike manner.  As we all know, activations has been perhaps the single biggest challenge with the FTTP rollout to date, with every drop (connection to the customer's premises) representing its own unique characteristics and challenges. 

In the past 10 weeks, the company has been averaging more than 3,000 activations on its brownfields fibre network alone, which is almost double the average rate of activations last financial year.

And the transition towards the multi-technology mix could only be made with the joint pilot with Telstra to deploy 1,000 nodes in NSW and Queensland. 

This will help the NBN Co 'industrialise' the process of rolling out nodes, and understand the construction challenges.  The next step, of which you will be well aware, is in the NBN Co connecting customers and developing its back-end business and operating support systems to support the widespread deployment of FTTN from the middle of next year.

Too many reviews?

 

While the shadow communications minister, Mr Clare, has very rarely asked me a question in the House and has never sought a debate on the NBN, he does regularly complain that the Government has had too many reviews into the NBN.

Now if I had been part of a Government that had made such a hash of broadband policy and had wasted tens of billions in doing so, I suppose I would not want my folly to be revisited.

The truth is that we have conducted precisely the reviews that we promised before the election.

It was important to have the history of this project set out, as Bill Scales did, showing how in just eleven weeks without any proper analysis let alone a mandate from the electorate, the Labor Government resolved to build an entirely new Government owned customer access network for what they claimed then was $43 billion.

It was important that the NBN Co itself carefully and soberly examine the state of the rollout strategy to date and weigh up the options for mitigating the mistakes made. The Strategic Review was the company's document - it was as much owned by the NBN Co as the corporate plan released today.

And of course the Vertigan Panel's cost benefit analysis and regulatory review were simply doing the hard analytical work, late in the day that should have been done at the outset.

And despite all of this work, all of this evidence both from Australia and overseas that the flexible, multi technology approach the NBN Co is now taking is the most cost effective one, the Labor Party, with all the imagination of a dalek, keeps on repeating that anything less than fibre to the premises is "second rate" and inadequate to connect Australians to the cybersphere.

When we were in opposition we challenged Labor's policy with detailed analysis and argument. We set out extensive evidence of best practice internationally and compared it to what was happening here. But the Labor opposition today does not engage on any matter of substance. The Conrovian agenda is unchanged, the Senate NBN Committee is used as a platform for abusing NBN Co executives and disrupting their work, and any analysis that disagrees with Labor's previous policy is dismissed as biased or "written by mates".

Like the Bourbons, Labor has learned nothing and forgotten nothing.

Targets for 2014-15

 

The NBN Corporate Plan released today contains a number of targets for 2014-15.

The first is the target for the number of premises passed in fixed line areas.  I must say at the outset that these figures do not include the FTTN pilot, which will pass more than 240,000 premises – if these were to be included, it would increase the size of the fixed-line footprint by more than a quarter.

The reason for not releasing these sites as being ready for service in the current financial year is that we want to work closely with the industry to ensure that RSPs have ample time to develop VDSL products and that the NBN Co's own back end systems are ready.  Again, the point is to ensure certainty and a smooth transition rather than prop up some short term figures for the sake of a press release.

The company's expectation is that the FTTN premises passed this financial year will be able to be activated by June or July. So for prudence they are not included in the numbers for the financial year ended 30 June 2015. If they can be activated earlier, of course they will be. We know, and the company knows, that the object of this exercise is not numbers in a press release but paying customers on the network.

The company has advised that there will be 815,000 premises ready for service in the fixed line footprint by June 30, an increase of 66 per cent from the project to date.  That is to say, they will be passed by fibre to the premises or fibre to the basement connections.

This is a conservative measure.  We are only releasing FSAMs as 'ready for service' at the point when 90 per cent of the premises within the site are passed. 

Previously, an FSAM was described as 'ready for service' when testing on the local and distribution networks were complete.  This was a wonderfully Conrovian metric – the customer might not have a means of connecting to the network and the NBN Co thus had no means of earning revenue on its asset, but the network running down the street was in great shape!

And in its own way it underlined what was wrong - only an enterprise whose goals were essentially political would call anything "ready for service" when the customers couldn't get a service!!  The days of "fibre the press release" are over - I want to see lots of customers connected to the network.

As I have said to Bill Morrow and the NBN Co management, a key measure of success will be lifting the level of serviceability. 

I repeat: the consumer must be at the centre of the NBN Co's focus and that is why we have spent so much time this year cleaning up old FSAMs to reduce the number of service class zeros and thus increase the number of premises that can actually order a service.

By far the most frustrating experiences of end-users with the NBN Co to date has been in ordering a service. In end-user surveys, installations and activations have shown up as the area where the NBN Co is doing the worst4. 

As the TIO found this year5, the NBN accounted for only 3 per cent of industry complaints but accounted for 25 per cent of industry complaints about problems in getting an Internet connection, and 40 per cent of complaints about missed appointments for connections.

This is why the NBN Co is forecasting it will increase the number of serviceable premises in brownfield areas from 67 per cent of the total premises passed to 81 per cent of premises passed.

As a consequence of this businesslike approach, the company is also forecasting a sharp increase in operating revenues from $61 million in FY2013-14 to $160 million in 2014-15.

Rural And Regional Australia

 

We are also looking to more than double the reach of premises in the fixed wireless footprint, bringing the total to 230,000 premises.

Of course, the financial year will also see the continuation of the critical design and construction phase of the satellites in the Long Term Satellite Service, which are scheduled for launch in late 2015. 

As I have said many times, if there is an argument for government intervention in broadband, it is in rural and remote areas which are not otherwise economic for the private sector to service.

It is pretty obvious that the NBN has its biggest impact with customers whose broadband was previously either non-existent or very inadequate and that includes most people covered by the fixed wireless footprint.

 It is a great measure of the pace of the rollout and the potential of the NBN that in the six months to June, according to CommBank analysts, the industry added 220,000 broadband subscribers, of which around 80,000 were from the NBN in areas with no broadband or very poor broadband[6].  This was the best industry performance in terms of new subscribers since 2008.

Conclusion

 

The NBN Co faces very substantial challenges and risks. While the multi technology model is less risky and less expensive, it is nonetheless still the largest infrastructure project in our history. Furthermore unlike a giant dam or tunnel or bridge, as a piece of widely distributed, linear infrastructure connecting directly to customers it is, in many respects, over ten million small projects each with their own individual characteristics - not least of which is the occupier of the premises involved!

The NBN Co is also the largest corporate turnaround in our history with big changes to personnel, to culture (most important) and of course to strategy and operations. The changes already effected are beginning to bear fruit, as is evidenced by the document being released today.

The next six months is a critical time for NBN Co and the industry.  But if there is one commitment I can give you it is that we will always ensure that the NBN Co, and the policies that surround it, are keenly focussed on the needs of the customer.

Ensuring that Australians are as soon as possible and as affordably as possible connected to high speed broadband is our objective. The means of achieving that are all secondary to that end.

[ends]

The 2014-17 Corporate Plan is available on NBN Co's website.


[1] NBN Co 2014-17 Corporate Plan, p.6, www.nbnco.com.au
[2] www.telstra.com.au/abouttelstra/download/document/tls781-nbn-analyst-briefing-transcript.pdf
[3] 1568 premises/week versus 3,336 premises/week
[4] NBN Co 2014-17 Corporate Plan, p.37
[5] TIO, 2014, Annual Report
[6] CommBank, 2014, "Broadband Industry Update: Broadband growth remains solid", November 7

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