Wednesday, 26 March 2014
National Broadband Network Select Committee; Report
Ordered that the report be printed.
That the Senate take note of the report.
In doing so, I am very proud to present this report. The Senate Select Committee on the National Broadband Network has issued this interim report because it has significant concerns with the accuracy and reliability of the NBN strategic review. The committee considers that the assumptions and conclusions set out in the strategic review are unreliable in the case of all examined scenarios.
The committee has found that the revised outlook includes financial manipulations and other irregularities. These include the exclusion of approximately $4 billion in business-as-usual incremental architecture savings signed off by the previous NBN Co management. It also includes an assumption of a delay in the revised deployment schedule that is at odds with NBN Co's current run rate. It also includes assumptions on higher unit costs for the fibre build that assume an additional $14.4 billion in capital expenditure but are at odds with recent evidence from NBN Co and the Department of Finance, and are extrapolated out to 2024 without a single efficiency saving for three years and only 2.5 per cent in two of the remaining seven years.
They also include the addition of a third satellite in the revised outlook, without direct explanation, with launch assumed at such a time, financial year 2021, to include costs but exclude revenues from scenario comparisons. It also includes overly pessimistic revenue assumptions that do not reflect existing strong demand for NBN services or the high-data usage patterns of Australians using the NBN. These overly pessimistic revenue assumptions also ignore demand for important elements of broadband quality, particularly reliability and upload speeds. They are also overly pessimistic about assumptions that remove revenue benefits from the superior product set available on fibre to the premise compared to other technologies with up to $3.2 billion in the steady state.
Finally, it also includes scenario comparisons that include costs and revenues for the multitechnology mix or MTM build at assumed completion and costs for the revised outlook out to 2024 but exclude revenues for the revised outlook beyond 2021.
The committee considers that, without the financial manipulations evident in revenue and other assumptions, the so-called radically redesigned FTTP scenario represents a better estimate of the cost of the fibre build than the revised outlook. This is because the productivity and architecture improvements included in scenario 2 had already been included in the September 2013 corporate plan and implemented by previous NBN Co management.
The committee has equally strong concerns about the reliability of assumptions underpinning the multitechnology mix, the recommended option of the strategic review. These include the fact that the financial model for the MTM was built using mostly international benchmarks and estimates, rather than field data of real-case scenarios here in Australia. They include operating expenditure for the MTM that is expected to be significantly higher than for a fibre network. The caretaker advice prepared by NBN Co points to the substantial costs associated with remediation and maintenance of the copper network.
The committee has heard similar evidence from witnesses representing the workforce in the field. Material operational costs are also expected from NBN Co managing at least two additional fixed-line networks, and the migration arrangements and IT systems that relate to them. However, the strategic review assumes that operating expenditure for the multitechnology mix will be similar to what is required for a new fibre build; and the limited speeds and product capabilities available on fibre to the node are expected to result in reduced revenues compared to a full fibre rollout in the fixed-line footprint.
Finally, the strategic review acknowledges that the MTM will need to be upgraded but provides no costs for these flagged upgrades. The full cost of the MTM will only be known once these upgrade costs are included in the model.
NBN Co's previous corporate plans have been developed over a period of many months and have been subject to independent oversight and verification. By contrast, the strategic review was the result of 'five weeks of intensive work on the part of lots and lots of people'—that was a quote—and was subject to no independent external oversight.
Further, the committee rejects strongly the rollout strategy advocated by the current government and reflected in the multitechnology mix. In particular, we reject the deployment of higher quality broadband, fibre to the premises, to high-value suburbs and the deployment of inferior broadband, fibre to the node, to low-value suburbs as an inappropriate use of taxpayers' money. As a Government Business Enterprise, NBN Co should not have a rollout strategy that favours one suburb over another—and this was a principle that was demanded by the current government when they were in opposition.
The proposed fibre-on-demand product is expected to be too expensive for many residences and small businesses. This will create competitive disadvantages for individuals and small businesses outside the fibre footprint, and will entrench broadband inequality in Australia.
The committee considers these rollout strategies reflect a fundamental misunderstanding of broadband quality—particularly upload speeds—and demand for this quality and reliability in the residential and small business and home business markets. Failure to consider that broadband quality and capability goes beyond download speeds is systemic in the strategic review. The strategic review also fails to consider the value of widespread access to this infrastructure to the digital economy.
The committee concludes that the strategic review does not comprise a sufficient information base for the NBN Co board or the minister to adopt an alternative deployment path for the NBN. NBN Co should be directed to continue and accelerate the fibre-to-the-premises rollout while further analysis is undertaken by NBN Co, the departments and the minister. The committee notes that NBN Co is not able to progress the fibre-to-the-premises rollout at the maximum rate possible at present. This is because, under the interim statement of expectations, NBN Co is required to obtain approval to issue additional build instructions. This places the management of the current FTTP rollout under direct political control. The committee considers that, given the continuing review work and the fundamental problems with the strategic review, NBN Co should continue the current fibre-to-the-premises rollout at the maximum rate possible and free from political interference.
There are a number of other issues that have been raised through the course of the report, including that key appointments to the NBN Co board and management relevant to the strategic review reflect to a large extent personnel named in media reports before the election. There is also clear evidence that many of these key appointees have prior personal associations with the minister, and the committee considers that some of the processes of recruitment for the board and management of NBN Co have created the perception that these are political appointments for a political purpose. In reaching this conclusion, the committee is not making any judgements about the skills and experience of any of those individuals.
A key finding of KordaMentha was that 'no material issues exist within the accounts of NBN Co'. However, the strategic review draws radically different conclusions from the information contained in the previous corporate plan signed off by an independent board back in June 2013. It is not clear to the committee how the NBN Co board could have endorsed the strategic review, given its clear deficiencies. In the committee's view, this should be investigated to ascertain how and at what point the governance processes at NBN Co have failed under the current government. I commend the report to the Senate.
Regrettably, I rise today unable to support the report that has been tabled in this place by the chair of the committee. In doing so it is of grave concern that I require to put on the record what I have seen as an extraordinary abuse of parliamentary process and extraordinary abuse of the Senate processes, and particularly an abuse of our committee system for which this place is held in such extraordinarily high regard.
There are so many things I could point to that occurred during the course of the establishment of this select committee and the subsequent hearings and meetings and the conduct of the committee since it was first established. I will give a bit of background about the areas of my concern. This committee was originally supposed to be established as a joint committee between the House of Representatives and the Senate. My understanding is that there had been an agreement with the shadow minister for communications, Mr Clare, that the committee would be a joint committee, and for some strange reason at the eleventh hour we found that we had a select committee set up in the Senate, which gives the opportunity for the previous minister for communications to be able to prosecute the argument in relation to what I can only suggest is his defending the legacy that was left to this government of the NBN. I have to say I think it is almost defending the indefensible.
What we have ended up seeing is a series of different activities this committee has done which undermine the integrity of our committee system. There have been situations where right the way through all of the hearings we had three Labor members, three coalition members and one Green. During the allocation of time by the chair, time and time again the lion's share of the hearing time was allocated to Senator Conroy and a much smaller amount of time was allocated to the coalition. We had situations where witnesses were not called, we had some extraordinary examples when the opposition members were bullying witnesses. We saw a situation during the estimates committee when they were prosecuting this issue, where Senator Conroy actually called the general manager at the time or the chief executive, now the chairman of the board of NBN, a liar. The committee all the time insisted on constantly calling NBN officials at really short notice and the requirement for six, eight or 10 of them to be appearing time and time again so that we could keep prosecuting this issue about why the NBN was not proceeding in the manner in which Senator Conroy had originally decided that it would.
It just seemed to be that it was more of an argument about having to have fibre to the premises. There was no debate really in this whole exercise about the people of Australia during the committee hearings. Quite clearly I heard them—it is not reflected in the majority report but it is reflected in our report—time and time again saying they wanted high-speed, reliable and affordable access to the internet. But what we saw in the response in the report we got back is that if it is not fibre to the premises it is just no good. That is not what the people told us during the hearings; it is absolutely not what we were told during the hearings.
Back to the conduct of the committee, though. We had a situation where the terms of the establishment of the committee allowed only three senators to form a quorum. My understanding since I have been in this place is that it is usual practice with a quorum that you usually have one member from the government and one member from the opposition at least to make a quorum, and then possibly one other person to make up the numbers. But no, in the establishment of this committee we had a situation where three people could form the quorum, which meant the three Labor members could form the quorum. I draw to the Senate's attention to when the committee was first established and actually held hearings before the government even had the opportunity of being able to appoint members to the committee. So two hearings, I believe, were held. It was just an extraordinary abuse of the powers of this chamber; that the opposition and the Greens can vote for anything, regardless of whether it maintains the integrity of the Senate and the committee system in this place. I think that was quite an extraordinary situation to find ourselves in.
The thing that is probably as disappointing as anything else is the extraordinarily difficult position that these actions have placed the secretariat in. The secretariats, as we all know are not partisan in any way, shape or form, but some of the requests that were put on the secretariat of the NBN select committee have really put these people, I would suggest, in a particularly conflicted and difficult position. I draw to the House's attention the way this interim report was finalised.
Last Friday night, at half past five, with no notice or communication—although much had been promised—I found the draft interim report on my email. Obviously, in good faith, I believed that was going to be pretty much a true reflection of what the final report was likely to be. So I, along with my coalition colleagues on the committee, spent the entire weekend writing a report in response to the document that we received on Friday night.
I contacted and spoke to the opposition members on Monday and pointed out to them the fact that they had no recommendations or findings. We were told that we would be getting the findings this morning and that the report was to be tabled tomorrow. So we thought we had at least 24 hours in which to respond to the recommendations and findings in the report—which we thought was the report we had. This morning, we found out—or late yesterday we found out—that the report and the findings were going to be tabled this morning and the report was going to be put into the chamber this afternoon, as it has been.
When we got to the meeting this morning, the report of the chair bore no resemblance whatsoever to the report we were given last Friday. So we had spent the whole weekend and much of the week, in good faith, developing our dissenting report in relation to what we had received on Friday, only to find that the report was actually three times as big, so we had three times as much information to go through. We had to go and find the bits and pieces in the report that had already been referred to on Friday, plus this myriad other information. And we were given the sum total of one hour to prepare a true dissenting report for the document we received this morning.
There was much good and interesting stuff that came out in these hearings, but I draw these matters to the House's attention because I believe that the operations of the Senate and the Senate committees have been totally abused to try to achieve a political outcome, to prosecute a political position, by those opposite. And I think it is extremely disappointing. The people of Australia, I genuinely believe, just want exactly what I said the people at the hearings told us. They want fast, reliable and affordable access to their internet.
It has been very disappointing to see the goings on and the damage that has been done—games have been played in the process of getting absolutely nowhere. All I can say about not being able to support the chair's report and in support of the dissenting report is that I really hope that in the next few months, as we continue to the final report for the NBN, that maybe we can use this time productively so that we can get some good outcomes for the people of Australia. The people in regional Australia, where I come from, need to get this NBN rolled out. Let's stop wasting the time of NBN Co and of everybody else, on a political witch-hunt. Let's stop scaremongering and actually start doing what we are supposed to be doing here—that is, delivering a good NBN for all Australians.
Thank you, Mr Acting Deputy President Bernardi. You are one of the true supporters of fibre to the home in this chamber. We know Malcolm does not want to give you fibre to the home and we know why, but we will still get it to you one day.
I rise to make some remarks on the interim report of the Senate Select Committee on the National Broadband Network. The committee has done important work in analysing and scrutinising the coalition's plan for broadband. When the minister tabled the strategic review in the other chamber, he announced that he would be breaking his promise to provide all Australians with 25MB per second by 2016. That was broken promise No. 1. He broke his promise to even build fibre to the node to nine million homes and businesses; proposing instead to keep the pay TV cables for many of these. That was broken promise No. 2. The committee has scrutinised in detail, as much as it has been able to, the coalition's alternative proposal: to spend $40 billion to build a broadband network that is inadequate for Australia's needs.
I want to thank everyone who has contributed to the report, particularly those who gave evidence and took the time to provide submissions. I also want to put on the record my thanks to the committee secretariat, who have worked tirelessly and have been outrageously sledged in the minority report prepared by those opposite.
This interim report is an indictment of the coalition's plans for broadband in Australia. After six months in government, all the coalition has to show on broadband is their sham NBN strategic review. The committee reports that the strategic review resorts to financial fudges, fiddles and manipulations in a failed attempt to justify the broadband policies of the coalition and the Minister for Communications. The committee has chosen to issue an interim report because it is important to record that the strategic review is a totally inadequate basis for making any decisions about broadband in this country. My colleague Senator Lundy has extensively chronicled this already, but I want to go through the deficiencies that have been used to junk the future-proof fibre network to the home NBN and prop up Malcolm Turnbull's mess that will be his legacy—
Sorry—Mr Turnbull. My apologies. Mr Turnbull's mess, the multi-technology mix. The committee's interim report has identified seven major financial fiddles that the strategic review makes. The first point: it assumes a delay in the revised deployment schedule for a fibre build that is at odds with NBN Co's current run rate but is used to strip $11.6 billion out of NBN Co's revenues on their forecasts. It is used to strip out the revenues of $11 billion but it also, because of this effect, causes a $13 billion increase in peak funding. So we have the first significant dodgy decision. Let's just say it is going to take so long to roll out that it loses $11 billion. Oh! It loses $11 billion, therefore it is going to cost $13 billion extra to finance that. Wow. What geniuses we have. What genius we have in Mr Turnbull's mate—with whom he owns a boat and has for 15 years. He gets him in, he's been given the flick from Telstra, demoted three times, and he is brought in to do the financial fixing for Mr Turnbull to justify Mr Turnbull's position.
The second point: The review excludes approximately $4 billion in business-as-usual architecture savings, described by the chief technology officer as 'incremental changes' from the fibre build. But they were signed off by the previous NBN Co management. NBN Co management say, 'We recommend these changes, $4 billion worth of savings to NBN Co', and what does Mr Turnbull's mate say? 'No, we're not having them. Can't have them.'
The third point: The review assumes higher unit costs for the fibre build that add $14.4 billion in capital expenditure but are at odds with evidence from the NBN Co's chief financial officer—who was excluded from being part of the strategic review, was not allowed to participate, not part of the team, just putting together the strategic review—and the Department of Finance. Then, in a staggering admission, when asked, 'Did NBN Co, when you forecast into the future, Mr Rousselot, forecast into the future because you might learn something and make some efficiency savings?' The answer: virtually none. This has got to be the dumbest management in the country, on the planet, at the moment. It is going to enter an alleged 10-year build and it is barely going to make a single efficiency saving over the 10 years. That has got to be the dumbest bunch of managers I have ever encountered in my life.
The fourth point: Just because even all of those fiddles were not enough to be able to give a misleading report to the board and to the minister, it presumes overly pessimistic revenue assumptions for a fibre build. It does not reflect the existing strong demand for NBN services or the high data usage patterns of Australians using the NBN. There is a 50 per cent increase in data usage, just by being on the NBN. I know, Mr Acting Deputy President Bernardi, if you got hold of the real NBN you would have more than a 50 per cent increase in your usage. I have no doubt—for entirely appropriate reasons, can I say, Senator Bernardi. There is no suggestion there whatsoever. And it ignores demand for important elements of broadband quality, particularly reliability and upload speeds. Even those in this chamber—and you would be one of them, Senator Bernardi—would understand that you like uploading things. People might have thought I was suggesting you were downloading things before, but no. I know you like uploading things, and you have got so many websites that you would like to upload that would be of such benefit for the political discourse in this country that it would be staggering. But Mr Switkowski knows best. He sat in front of the committee the other day and he said, 'No Australians want 100 megabit per second speeds.' Twenty per cent of his existing customer base have taken 100 megabit per second speeds! And another five per cent have taken 50 megabit per second speeds. Twenty-five per cent of users of NBN want speeds faster than Ziggy Switkowski, Mr Turnbull or Mr Abbott have said. I will take a bet: If Senator Bernardi got a chance to sign up he'd be on the top package too. He'd want the fastest speeds and the biggest data caps. He would absolutely want it.
The fifth point: It adds a third satellite to Labor's NBN, without direct explanation. It just lumps it in—'We're going to buy a new satellite'. Here is the fiddle for this: We'll pay for it and have it launched in 2021, which means we count the cost of the satellite in NBN's cost base but the 100,000 customers that are projected to use the new satellite all happen after 2021—so we cannot include the revenues from the NBN's new satellite in the business plan. So you put a satellite cost in, charge it to the NBN for the whole future cost basis of this rort, but you are not allowed to include the revenue from the customers. Pathetic really, isn't it? Yes.
The sixth point: In scenario comparisons the strategic review includes costs and revenues for the multi-technology mix bill at assumed completion—but excludes the revenues, worth $50 billion, from the fibre build. That's right! They package it up to 2021 and then say, 'Because we have extended the deadline for the completion, we're going to rule out $15 billion worth of revenue that should be included, because we're just saying, no, you can't count it after 2021. We've got to compare the revenues at 2021 against our dodgy model at 2021.' (Time expired)
It is difficult to know where to start after that contribution from Senator Conroy. It continues the parallel universe that those of us on the Select Committee on the National Broadband Network experienced. If you were on that committee and you were to believe the lines being run by Senator Conroy and other non-government senators, you would think that it was the coalition who had presided over the debacle that has been the NBN Co under the leadership of the former government. You would think that it was our fault that there was a blow-out of over $30 billion in the NBN. Senator Conroy's performance here today really just continues the transparent attempt to defend his indefensible legacy when it comes to the NBN. Senator Conroy, of course, is no longer the communications minister and is in fact not the shadow communications minister, but he has spent a lot of time trying to protect his legacy. We saw that today, and we saw that in the committee.
On Senator Conroy's conspiracy theory when it comes to the Strategic Review of the National Broadband Network, I want to just add maybe some facts in and amongst the conspiracy theory that Senator Conroy has put forward. His claim is that the strategic review was all about making his broadband legacy look bad and making every alternative look better. That is the basic summary of what Senator Conroy had to say. But I will draw his attention—and I drew attention in the committee—to one of the assumptions that was made in the strategic review, which was overly generous, I would say, to Senator Conroy and his legacy. That was in relation to contingency. The contingency that was applied to Senator Conroy's ongoing NBN blow-out was 10 per cent, when the contingency applied to all of the other projects was 20 per cent—because that is a more reasonable contingency to apply. That meant that, in the estimation of Senator Conroy's plan, the business-as-usual-plan under the previous government, if we had applied the right contingency, the same contingency, it would have cost an extra $6 billion over and above the headline figure. So the conspiracy theory that he has put out there is ridiculous. This was an exercise in legacy defence, and it was a very poor one.
I endorse the comments of Senator Ruston. Senator Ruston has gone into detail on the lengths that opposition senators went to in order to try and get the result that they wanted, including bringing in their union mates to tell us all about how good fibre to the home would be and to bring us anecdotal evidence in relation to Telstra's copper network. Of course, when pushed on statistics, when pushed on facts, they were not able to provide anything. This was the way it was conducted.
I want to go to some of the facts—some of the facts that the majority report completely ignores and some of what government senators have sought to highlight. That includes that the NBN is yet to meet a single fibre rollout target. We know that, in the corporate plan in December 2010, total houses passed by fibre were to be 317,000 by June 2012 and 1.268 million by 30 June 2013. In the corporate plan of August 2012, the actual result, instead of the 317,000 for 2012, was 39,000. Instead of the 1.268 million for June 2013, the actual figure was revised to 371,000 houses. By 30 June, only 208,000 houses of the 1.26 million originally planned were passed by fibre.
Then we see houses with an active service on fibre, both greenfields and brownfields. The corporate plan of December 2012 proposed 137,000 by June 2012 and 511,000 by 30 June 2013, but by 30 June 2012 only 4,000 houses had an active service, instead of the 137,000 planned. And the 30 June 2013 target was revised down to 54,000, but even that was not met, with only 34,000 houses having an active NBN fibre service by 30 June 2013.
If you had listened to opposition senators during this inquiry, you would not know that any of this had happened. You would live in the parallel universe that Senator Conroy is hoping we will accept. We know that the original NBN target announced by Mr Rudd and Senator Conroy was completion by 2018 at a cost of $26 billion. That was revised to a 2021 completion, but at the time of the last election NBN Co had passed 258,000, around 2.1 per cent of the total. We know that in South Australia, Western Australia and the Northern Territory at the last election just 1,714 premises had active NBN fibre services despite a population exceeding four million people. Senator Conroy, as minister at the time, insisted that the project was on track, but it is clear that it was not and it was never the case.
I will quote from the dissenting report, where we quote Senator Conroy belatedly admitting that there were problems with the project, saying:
We clearly underestimated and … it's fair to say the construction model could be legitimately criticised … We wouldn't have been so aggressive if we'd known how tough it was for the company. So that was an area where we were overly -ambitious … I can understand and indeed empathise with those who are disappointed with the progress on the fibre roll-out.
That is true, but that does not fit very well with Senator Conroy's repeated declarations over many years that the rollout was on time and within budget, such as his claim:
The [corporate] plan being released today confirms the project is on track.
In fact, nothing could be further from the truth.
The chair's report stresses the importance of transparency in the NBN project, yet the previous Labor government were briefed before the election that delays had increased costs by $1.4 billion, and KPMG had warned the previous government that rollout targets were presenting significant risks to the project, yet the then minister, Anthony Albanese, told the ABC that KPMG had found that the time lines and costings were good. That is simply not true. The Labor cabinet was briefed by its own bankers, Lazard, that the project would have a negative net present value of $31 billion. They did not openly disclose that many houses being passed could not be serviced and, instead, leaked it to the media. They released bad news such as the revising down of the 30 June 2013 targets under the cover of the 21 March 2013 leadership challenge to minimise embarrassment.
By contrast, the coalition government have undertaken an independent review, giving the public a true insight into the costs of the project in time and dollars. The NBN Co is now publishing rollout progress and uptake week by week. NBN Co recently held a quarterly analyst briefing where NBN executives took questions from analysts and journalists. The chair of the committee was critical of some of the commercially sensitive information redacted in the NBN strategic review, but it was the Labor government who attempted to force senators to pass crucial NBN legislation without seeing its corporate plan.
The chair's report is silent on the progress made by NBN Co in transitioning to the strategic report's recommendation of multi-technology mix. This approach is predicted to save taxpayers $32 billion and get the NBN finished four years sooner. This goes to the heart of the difference between the coalition and the Labor opposition on this issue. Senator Conroy, Senator Lundy and those opposite would have been happy, if they had stayed in government, to have continued to deliver a flawed model. They would have continued to deliver it behind schedule, and they would have continued to see the costs blow out not just to taxpayers to the tune of at least $32 billion in extra spend. Consumers would be paying for something that they did not need. This is the fundamental difference between the government and the opposition on this issue.
In summary, there was a moment where Senator Ruston talked about how Senator Conroy would ask a lot of the questions. But there were moments, in fact, where he was not content with asking all of the questions and he sought to actually try and answer all of the questions as well, as if he were still the minister. He was struggling to let go. That is what this is about. What we saw in that speech and what we see in the committee report—which is really Senator Conroy's report—is the struggle to let go. It is an attempt to rewrite the history books, when this was disastrously managed. It was concocted on a flight on the back of a beer coaster. Australians are paying the price, and the coalition is cleaning up the mess. (Time expired)
Question agreed to.