NBN REBOOTED – COMMUNICATIONS ALLIANCE CONFERENCE
TUESDAY, 19 NOVEMBER 2013
SWISSOTEL, SYDNEY
As Petroc said, I am the new kid on the block.
I am another lawyer, don’t hold that against me.
I am not going to attack the media today or anyone else in the room. I am looking forward to working with everyone here. Listening to you and learning from you. Seeking your advice.
Today I thought I would give you some of my initial thoughts after a month in the job.
Petroc mentioned a bit about my background. I am a boy from Western Sydney. I have worked in the public and the private sector. Before I was elected to Parliament I worked at Transurban for five years. At the time we were involved in the biggest infrastructure project in Australia – the M7 motorway in Western Sydney.
In the last few years my focus has been national security – first as Minister for Defence Materiel and then Minister for Home Affairs.
Already I have noticed a few similarities between the defence industry and the telecommunication industry. Both are full of complex technology and even more complex acronyms.
After the last election I asked for a change. I asked to move from national security to an economic portfolio. I am very fortunate to be appointed Shadow Minister for Communications.
It’s a huge portfolio, and one of the most important. What we do in this portfolio today will determine the country that we will be tomorrow. That is not just rhetoric, it’s real.
The Digital Century
We sit on the edge of what will be the biggest middle class the world has ever seen. By the end of this decade, Asia will have a bigger middle class than the rest of the world combined.
Ten years after that, two thirds of the world’s middle class will live on our doorstep. Just imagine what this will mean for Australia. Our challenge is to make the most of it.
We often call this the Asian Century. It’s also the Digital Century.
The wealthiest countries in the decades ahead will be the smartest countries. The countries with the best educated workforces, with the best access to information, and with the infrastructure to drive this.
That’s why the NBN is so important. It’s the engine that will create jobs, build companies, drive productivity, increase trade and make us a stronger economy and a fairer country. It will help build the Australia of our imagination.
Labor was flogged in the last election. But I suspect very few people voted Liberal because of their broadband policy. In fact, I suspect they voted for them in spite of it. 70 per cent of Australians support our model for the NBN. They support it because they know how important it is.
It will change the way we live and the way we work – just like electricity did.
When electricity was rolled out to homes across Australia no one imagined it would be used for things like television or air conditioning or computers. The primary purpose was to light the house. Very quickly it led to electric kettles, toasters, irons, heaters, vacuum cleaners, washing machines, stoves, fridges, dishwashers, and lots more.
It has changed our lives. Why did this happen? The infrastructure led to innovation and that led to more demand for more electricity. The same thing will happen here.
The NBN will change the way we work. It will transform the way education is delivered. In healthcare and aged care it has the potential to save taxpayers tens of billions of dollars in the decades to come.
It will change the way we live in other ways we can’t even begin to imagine now. The father of the internet, Vint Cerf, has given us a hint of this in his often quoted remark that 99 per cent of internet applications haven’t been invented yet.
Getting It Right
Because of this, because the NBN is so important, it is important that it is done right.
My view, Labor’s view, is that means building a National Broadband Network that delivers fibre all the way to homes and businesses.
The new Government has a different view. They are proposing to use fibre to a node in the street and then use the existing copper network to your house or business.
Who’s right? In the very short time I have been in this job every expert I have spoken to has told me that fibre is the end game. The Minister has said much the same thing.
The question is whether you do it now or later. In other words, do we build a fibre network in one stage or two?
If fibre is the end game, if we are going to need it, it makes sense to build it now. Otherwise we are just going to have to come back and do it later – and it will be more expensive to do then than it is now.
Building the network in two stages creates a number of additional costs:
- the cost of fixing and upgrading the existing copper network;
- the cost of operating and maintaining it;
- the cost of wasted investment – like the construction, operation and maintenance of tens of thousands of nodes that would not be required if the network was built in one stage not two
- the loss of efficiencies of scale; and
- the cost of lost productivity because the network can’t deliver the service it’s customer’s need.
The M5 East project here in Sydney is a good example of this.
Just over a decade ago the M5 East tunnels were built in Sydney. They are two lanes in each direction. Soon after they opened it was obvious this was not enough. They were choked with traffic. The NSW Government is now trying to fix this. They have promised to build two more tunnels – but this is still almost a decade away.
This should have been done years ago, when the M5 East was first built. It would have been cheaper, the roads wouldn’t be clogged today, and the economy would have been more productive.
There is a lesson in this. Don’t just build for today. Build for tomorrow. It will be here sooner than you think.
Earlier this year Tony Abbott said “we are absolutely confident that 25Mbps is going to be enough – more than enough for the average household”.
I would argue that he is making the same mistake the designers of the M5 tunnels made. A third of NBN customers are already ordering more than 25Mbps.
I suspect in the years ahead we will look back on those words in the same way we look back on other memorably short sighted predictions – like the President of IBM’s claim in 1943 that the world market for computers might be five, or Ken Olsen’s statement in 1977 that “there is no reason for any individual to have a computer in his home.”
The Strategic Review
There have been problems with the early construction rollout of the NBN. It is not good enough and it needs to be fixed. The construction of major infrastructure isn’t easy. I know that from my experience at Transurban.
There are things that can be done to improve the construction rollout, and they should be done. But we shouldn’t throw the baby out with the bath water.
The Minister has ordered a Strategic Review of the project. That is good. It is an opportunity to address some of the challenges with the rollout of the NBN.
Here are some constructive suggestions: employ a CEO with experience in rolling out network infrastructure, work with industry to fix the construction problems, make changes that will speed up the rollout.
But don’t stop building a fibre network that we are going to have to come back and finish off later. Fibre to the premises is the right policy. We have to fix the construction of it – not throw it out.
The new Government has promised to deliver the NBN faster and cheaper. It’s not off to a good start:
- Construction has slowed down rather than sped up;
- Half a million homes and businesses that thought they were getting Fibre to the Premises have been taken off the NBN rollout map;
- construction companies haven’t been given work, and,
- despite promises from the Minister that the changes he is making “will ensure the NBN’s current contractors do not have to lay off staff”, they are laying off staff right now.
The Government has got to fix this. And fix it fast.
They are just a few of issues that need to be resolved.
Issues That Lie Ahead
The Minister has promised the re-negotiation of the Definitive Agreements with Telstra will be quick. I suspect he is being optimistic.
David Thodey has described these agreements as amongst the most complex in the history of corporate Australia. Opening them up and changing them is not a simple task, and the longer this takes the longer the delays that we are witnessing now.
Even more important is what comes of out of these negotiations. It is important that nothing the government does undermines the structural separation of Telstra. This is one of the most important micro economic reforms in the last decade, and it is very important that we preserve and foster an open access wholesale market.
The Minister has said he is technology agnostic – what does this really mean? He has promised not to change fixed wireless and satellite coverage – and we will watch that very carefully. He has promised Fibre to the Node for nine million homes. We will also keep a close eye on this, to make sure the government doesn’t use the existing HFC network as an excuse to reduce the rollout of Fibre to the Node.
The Minister has also promised everyone will have access to 25Mbps by 2016. We will keep him to that promise.
To meet it I expect the Government will rely heavily on the existing HFC network. It has gaps in it. If they are going to rely on HFC to meet this commitment it will need to be upgraded and in-filled. It is also needs to be open access.
The Minister has also promised that whatever he builds, it will be easy to convert it to Fibre to the Premises in the future. It is essential that this is the case and that the Strategic Review spells this out.
If the Strategic Review assesses the cost of building the NBN in two stages rather than one it is important it is done right. That means;
- it makes this assessment based on the thirty year life of the NBN business case;
- it includes the revenue foregone from higher speed services; and
- it uses the real cost of capital to government, not a commercial risk weighted rate.
We also need to know how much it is going to cost to keep the copper.
How much it will cost to fix and upgrade the existing copper network? This is a major risk. Is Telstra providing full details on the current state of the network to the Strategic Review team, and how much it will cost to remediate it? Is this being independently audited? If not it should be.
The Minister has promised this review will be rigorous and forensic. He said yesterday:
“we want hand on heart true, realistic and achievable options prudently costed and scoped on which we can make weighty decisions”.
Well, how can you do that if you don’t know how much it is going to cost to remediate the copper network?
The Strategic Review is supposed to be released in less than two weeks. Yesterday Communications Day quoted an NBN spokesperson who said NBN Co hasn’t spoken to Telstra yet about the state of the copper.
If they haven’t done that, how will we know how much it will cost to build and operate to a Fibre to the Node network?
We need this information before any weighty decisions are made to switch from Fibre to the Premises to Fibre to the Node.
We also need to know how much it will cost to operate and maintain the copper network.
I am sure you have heard the same estimates I have – that the cost of maintaining the copper network could be between $500 million and $900 million a year.
If that’s right it means spending between $5 billion and $9 billion over the next decade, just to maintain something that we will eventually replace with fibre. It begs the question – wouldn’t that money be better invested in fibre now?
Also, is NBN Co is going to buy the copper network from Telstra or lease it?
It’s an important question, because if Telstra continues to own the copper it potentially creates structural separation issues.
The Minister has also promised free Fibre to the Premises for homes with degraded or maintenance intensive copper. How is this going to be evaluated? And how do you justify one house getting fibre for free because their copper has degraded, and the people who live next door have to pay a couple of thousand dollars for the same service?
How many nodes will there be? How much will they cost to build, operate and maintain? Where will they be located? What will be the maximum distance of a node from any premises? Will voice be delivered over copper voice frequency or will it be delivered using voice over IP?
All of these questions are important because they will determine the cost and capability of the NBN rebooted.
They are my initial thoughts and observations – but I am keen to get your advice.
Conclusion
On all big infrastructure projects politics gets involved.
When the Snowy Hydro project was first conceived the then Opposition Leader Robert Menzies was one of its fiercest critics. He even boycotted the launch of the project. But when he became Prime Minister he changed his position, he supported it and he funded it.
At an event to mark the construction of the Tumut Pond Dam in 1958 Menzies said:
“In a period in which we in Australia are still, I think, handicapped by parochialism, by a slight distrust of big ideas and of big people or big enterprises… This scheme is teaching us and everybody in Australia to think in a big way, to be thankful for big things, to be proud of big enterprises and… to be thankful for big men”.
My hope is that the Liberal Party listens to the words of Robert Menzies and look at what he did.
They have already moved a lot in the last few months. For most of the last two decades they argued that the roll out of broadband infrastructure should be left to the private sector – and the Government should only get involved in rural and regional Australia.
That’s now sort of changed.
Forget for the moment the Prime Minister’s recent comment to the Washington Post that the NBN is “wacko”. The policy the Coalition took to the last election is very different to the policy they took to the 2010 election. In 2013 they promised to invest 15 times more than they promised in 2010.
Three years ago they said they were going to demolish the NBN. Now they say they are going to keep it – even if through gritted teeth.
We have won the debate. A bit like Medicare, the Coalition realises the NBN is too popular to destroy.
The last debate is whether we build this fibre network in one stage or two.
To answer this question I think we need to look beyond the next three years. What will we need in the future? What will our children need? What will our economy need to compete with and trade with the countries of our region and the world?
In the first speech I made in Parliament I said:
“Our great responsibility is to govern not just for this generation but for the ones that follow. The pace of change and the challenges ahead demand it”.
There is no better example of this than this project – the NBN.
And that is what the NBN rebooted must achieve.
It is the key to unlocking the potential of Australia in the decades that lie ahead.
(ENDS)
MEDIA CONTACT: RYAN HAMILTON 02 6277 4904
