After debating the ins and outs of the best national broadband network for Australia on Business Spectator's pages, Alan Kohler and Malcolm Turnbull go head-to-head in a live debate.
Alan Kohler: Firstly, I think it’s great that Malcolm has come today. Thank you for doing that, subjecting yourself to this.
Malcolm Turnbull: I’m normally shy and retiring.
AK: That’s right! Now, IBM Australia and New Zealand managing director Andrew Stevens called it a conversation. Chief executive of Business Spectator and The Australian Nicholas Gray called it a debate. It’s probably going to be somewhere in between. I don’t want to get accused of misleading and deceptive conduct, however I’m not the stand-in for communications minister Anthony Albanese, sitting here debating in a political sense with the shadow minister.
And there’s been an incredible amount of Twitter conversation ahead of this. A lot of people have been suggesting questions. It’s unbelievable the number of questions that have been suggested to me. I just wanted to say a lot of that stuff is technical and I don’t want to spend today with technical discussions. I think that Andrew’s right. It needs to be big picture, business models and policy and so on.
And the final thing I wanted to say is – and Nicholas didn’t quote this, but the last thing I wrote on the subject I think was to congratulate and acknowledge the fact that Malcolm has brought the Coalition’s policy on the national broadband network a long way. When he took over the portfolio, the policy was to abolish the NBN. It had been stated by a number of frontbenchers including the Opposition leader. And now the policy of the Coalition is to have the NBN in a different form. So I just wanted to acknowledge that. That’s been a fantastic effort by Malcolm to do that I think, and most people in this room would agree, I’m sure.
MT: I think you should take all the credit for it, actually.
AK: Thank you. Well, I’d be happy to do that actually.
MT: I wanted to get this off on the right start, so that, you know…
AK: You’re such a suck, Malcolm.
MT: Oh, absolutely. You know, they say the flatterer is seldom interrupted and as far as flattery goes with royalty you should lay it on with a trowel. I think with journalists who are about to interview you, you should lay it on with a backhoe.
AK: Well, I can assure you it’ll do you no good whatsoever, Malcolm. Okay, so the first thing –
MT: Right, fire away.
AK: Okay, so the first thing I just want to get on the record – you may have said this already, I can’t remember – if you win the election, you take over as minister, what exactly will happen to NBN Co? Will it be put into suspended animation while you conduct your studies and reviews that you propose? Because there are a lot of companies that actually are relying on the NBN business. We’ve seen Macmillan Shakespeare collapse its share price because of what happened with the fringe benefits tax and I’m wondering – and a lot of companies, I’m sure, are concerned – that that might happen as a result of what you do.
MT: Well, there are a lot of companies relying on the NBN at the moment, and regrettably some of them are insolvency practitioners who are trying to help out the contractors and subcontractors who have been losing so much money doing the work. As we’ve stated in our policy, we’re going to accelerate the rollout of the NBN. The idea is to complete the project sooner.
We will honour existing contracts where there will be a shift in the mix in the fixed line area from being all fibre to the premise, albeit being built at an incredibly slow rate. And we all know how far they’ve missed their targets and so forth, to a mix where most of the brownfield areas will be fibre to the node. That’s our expectation, but we’ll justify that in a manner I’ll come to in a minute, and about 20 per cent – so well over two million premises – will be FTTP.
So there’s still going to be a lot of FTTP and if we can justify doing it more cost effectively, we will. You know, one of the critical things to bear in mind is that the most important thing we’re going to do, from the jump, is undertake a very rigorous analysis of what this project is really going to cost in dollars and years to complete on the current specifications, and then an equally rigorous analysis of what are the genuine savings. Not in an idealised way but in an actual, realisable way – the genuine savings that can be achieved in dollars and years by making certain modifications, including those we’ve canvassed in the policy. And that which we’ve called the strategic review in our policy is the single most important piece of work in the first 100 days.
AK: Well, how long will that take? I mean, that’s the question.
MT: Well, our aim is to get it done in 60 days. I would expect that there’s a fair bit of preliminary work being done both in the department and NBN Co because government departments always do anticipate the possibility of a change of government. I think if we win the election, we won’t be presented with a blank sheet of paper, there’ll be a fair bit of work done already. But it is very, very critical because, as you know, we think the NBN Co’s business plan dramatically undercooks the cost of construction and the time taken to complete it, among other things.
AK: Well, just on that subject, you’ve roundly criticised the government for not having done a cost benefit analysis from the beginning. But aren’t you really guilty of the same sin in reverse? Which is to say that you’re making all these assertions about the NBN, and their NBN, and what it is going to be and so on, without there being a cost benefit analysis. I mean, you’re actually pre-empting the work that you say is required with your assertions.
MT: No, no. We most certainly are not. We have set out what we expect an NBN Co configured in a more rational manner will look like, but as I’ve said, if we can do more fibre than we’ve anticipated, that wouldn’t be a bad thing. There are other technologies that we have not canvassed in here. Variance on FTTN is… We’ve assumed you would deliver in most of the brownfield areas broadband taking advantage of the last X hundred metres of copper using a technology called vectored VDSL, which is very high bit grade DSL with the vectoring technology that is a noise cancellation technique. But there is an even more souped-up version of that called G.fast which is now starting to be deployed commercially for the first time, which over short copper runs – by which I mean, say, 100 metres – can deliver over one gig.
Now, let me give you a high level appreciation of what’s happened, say, for the last five or six years. For me, that’s a long time in this line of work. For a long time, there has been a big difference between the cost and the time to provision of FTTP versus FTTN. Regrettably, as they say, Moore’s Law does not apply to digging holes. So all of that additional civil work is still there. If anything, that gap in terms of dollars and years is getting bigger because particularly in a country like Australia, labour has gotten more expensive. So you would say FTTP is three times, four times, five times more extensive to FTTN, depending on where you are.
But there is also a service level difference. And so if you think about what you could deliver on ADSL 2 five, six, seven years ago – say you could deliver 10-15 megabytes, and you could deliver up to a gigabyte on FTTP, that’s a very big difference in service level. What has happened in relatively recent times is that difference has compressed, and so now you are seeing the difference in the service level that is available over FTTN, fibre to the basement – what you could call generically ‘fibre to the X’ technologies – has become much less. And as we all know, there is a point at which increases in speed cease to have any additional or any marginal utility where the marginal utility goes to zero.
If I have 50 MB and that enables me to do everything I want to do – every application, every service – then going to 100 might be nice to talk about to my friends, but it is not going to deliver any additional value. And this is why all of the telco representatives here will know ruefully how hard it is to get people to pay a premium for very high speeds. And this is a really important point because the Labor party will say our policy is using old-fashioned technology. That is an outright lie. The technologies we are talking about using, whether it is vectored VDSL or now with the potential to use G.fast, are not old technologies – they are the latest. They are the latest. Gigabit passive optical network (GPON) has been around for a lot longer than them. So we’re talking about the cutting edge, not old technologies.
AK: It’s actually tempting to jump ahead – I’ve got all these questions, but I I’ll jump ahead to one. Because actually, in 2003 or 2004 – I can’t remember which year – Telstra showed up at a Senate committee and said that ADSL and VDSL was an interim technology and that FTTP would be needed in future because, in Telstra’s own words, the copper was archaic. Bill Scales, who was the senior Telstra executive at the time, told the committee that for copper it’s five minutes to midnight – and that was nearly 10 years ago.
MT: Well, he was wrong, wasn’t he? So, I mean clearly –
AK: Now it’s one minute to midnight!
MT: No, look. I’ll tell you what my methodology has been. As you know, I’m a very practical person. I’m not a terribly good politician … I come from a business background.
AK: You are talking about it as if you’re the chief executive of the NBN … it’s a business and you are the boss of the business.
MT: Do you have any doubt that the buck won’t stop with me if I’m the minister? I mean, it stopped with Stephen Conroy. It stops with Anthony Albanese.
AK: But –
MT: Listen, let’s not get into that. I want to focus on the really critical point, rather than playing pathetic debating games with you. The critical point is this. If you want to know what’s going on with broadband, don’t waste your time talking to consultants, or let alone academics. Talk to the men and the women that are actually building the networks now. Talk to Michael Galvin, who’s building the Openreach network in the UK. Talk to the people that are building the FTTP in a very different context in Telefonica, in Spain; or in France, Telecom; or in Deutsche, Telekom or AT&T, with their U-verse FTTN versus Verizon’s fibre-optic services FTTP program. Talk to the people at Rogers Cable in America – how they have cranked data over cable service interface specification up, to deliver very, very high speeds.
When you talk to those people, you see that the proposition that copper is at five minutes to midnight is simply not true. I mean, these are not stupid people, these are really smart people and they are getting real value quickly. And, you see, here’s the thing. Andrew spoke on behalf of IBM here about the real values in productivity from having ubiquitous, very fast broadband. I echo every one of his sentiments – he’s absolutely right. But you know something? If there is that big payday between having a ubiquitous broadband, then that means that rapid deployment is an enormous plus. If there is an enormous benefit by everyone getting this service, then there must be an enormous detriment by delaying it for 10 years or 20 years.
Now, we’ve done some calculations about that. I won’t bore you with them, but they run into the many, many billions of dollars. So our approach of getting everybody onto very fast broadband by the end of the next Parliament is something that has got to have, by parity of reasoning, a huge economic pay-off. And that’s one of the reasons we’re doing it. If you could snap your fingers and time was irrelevant and money was irrelevant – if you were Harry Potter or something and you could say, right, I’ll wave my wand and everyone in Australia will have FTTP and it won’t cost anything and it’ll all happen instantly – of course you’d do that.
But you know that’s Hogwarts, right? We’re in the real world, and we’ve got to grapple with those practical realities. And I think the approach we’re canvassing – and we will justify it as I described – is exactly the same approach that the smartest telcos around the world are taking right now, and that is an undeniable fact. So maybe they’re all idiots, and some guy at a university in Melbourne, or some consultant, knows more about it than they do – but I don’t think so. In the real world, I like to talk to the people who are actually doing the work.
AK: So, Malcolm, if I can just interrupt you.
MT: Sure. Sure. Sure.
AK: By definition, if a cost benefit -
MT: I’m warming up. You know we’re having a politics in the pub on cyber security at the Imperial Hotel tonight, so -
AK: So, this is your warm up.
MT: I’ve got to get cranked up, you know, ready for that.
AK: Righto. Well, I’m just going to have get more active. I’ve got to -
MT: Yeah. You just rev up. Rev up.
AK: Got any beers? No.
MT: So… There’ll be more than a few tonight at the pub.
AK: And by definition, if you haven’t done a cost benefit analysis, you don’t know what it says, right? Well, I’m just a simple bloke from the country -
MT: No, no, no. But we’re going to do one. We’ve got… It’s in the policy, Alan.
AK: No. I understand. You’re going to do one. I’m not saying you’re not going to. You’re going to do one.
MT: You can’t do one from opposition, Alan.
AK: No. I understand. So, therefore you don’t know what it says, right?
AK: So, it might say that the FTTP is fine.
MT: Well -
AK: Because… And I say this because I would have thought that you would, in a proper cost benefit analysis for a national infrastructure project, which the NBN clearly is – it isn’t just any old business; this is a significant national infrastructure project – you would-
MT: But it is any old money and it should be treated carefully as though it were a shareholder’s funds. I’m sorry.
AK: No. I understand. But government… No, but Malcolm, governments spend money on all sorts of social things and they are not simply…
MT: …And they often misspend it.
AK: Well sure, but they spend them and spend them well on social things… social outcomes as well.
MT: Sometimes. Yeah.
AK: As they… I mean of course they do. That, if I may say, is a pathetic debating point.
MT: No, it’s not. It’s not pathetic. Look, the misallocation of resources by the public sector is a problem in every jurisdiction. The private sector makes plenty of misallocation of resources too, but the difficulty is that what… Look, let me talk about -
AK: But government is not a business, Malcolm. Government is not a business.
MT: Yeah, yeah. But that doesn’t mean you can just waste money recklessly. You see, what people do is that -
AK: No, no. I’m not saying that’s true, but will you -
MT: No, but what you’re saying -
AK: Will you in your cost benefit analysis include nonfinancial benefits?
MT: Of course. Of course.
AK: You will?
MT: I didn’t come down in the last shower. Let me explain. I’ll tell you what the big issues in the cost benefit analysis are. Firstly, you’ve got to do the financial analysis. How long is it going to take? How much is it going to cost? Let’s assume that our analysis from the outside, which by the way no one is challenged any of the assumptions in it, but let’s assume they’re right and their approach will take, many, many years, cost $94 billion; our approach will get the job done much sooner and cost $29.5 billion. Let’s assume there’s that big delta, that big gap, $60 billion or whatever.
And then the question is, and this is the very interesting one – are there sufficient external benefits, sufficient externalities from productivity occasioned by people having FTTP, which let’s say for argument’s sake enables you to have speeds of a hundred megs plus, whereas FTTN (and we’ll just assume) will not allow you to have more than say a hundred. So FTTN, let’s say, with all of the technology that’s coming down the track, fast, let’s assume that it’s knocked out at a hundred megs, FTTP can go to a gig, is that differential, bearing in mind we’re only talking about residential premises, is that worth $60 billion? And that’s the big question.
AK: Well, can I start by saying that I think the $60 billion is rubbish, but I have got no way of proving…
MT: Well, why? Okay. Well -
AK: Well, I have no way of proving that because I haven’t done a cost benefit analysis. You’ve asserted -
MT: No, no, no. no.
AK: You’ve just asserted that.
MT: No, but you don’t -
AK: I’m asserting something else.
MT: No, no, no. You see, this is where you let yourself down. You shouldn’t say things like this in public. Seriously, you’ve got young, impressionable people watching this who hang on your every word. I mean we’ve got to the $94 billion by changing four parameters in the NBN corporate financial model. We said they’re not going to be able to increase their RPU at nine per cent real every year for ten years because there’s absolutely no precedent for that in the history of telecommunications, at least in this country, and we’ve said a healthy three and a half per cent real.
We’ve said it’s going to take them four more years to complete it which I think is very generous. We’ve said their cost of construction is going to be actually less than what it cost Telstra to do fibre to the premise in south Brisbane and I think, with the benefit of hindsight, now we’re probably again being too generous of them. We said it’s going to be 3600 rather than 2400. And we’ve assumed there’ll be more wireless only premises than they’ve assumed.
Look, that policy has been out for four months. I’m waiting for someone in the analyst community, be they journalists or economists, to say “guys one or all of those assumptions is wrong.” Now, I think all of those changed parameters I’ve put to you are very plausible and reasonable, so if they’re right, $94 billion is the figure.
AK: So, when you appoint your cost benefit analyst, you’ll go here it is, off you go.
MT: No. No, I…
AK: You’re reverse engineering the cost benefit analysis.
MT: That’s what the NBN did. That’s what they did with their plan.
AK: No. But you’re saying the cost is $94 billion. What if it isn’t that? I mean what if it’s -
MT: Well, if it isn’t that… If it’s less, I’ll be delighted. You’ve got to understand this, Alan. If I could be, you know, a magician and ensure that everyone had FTTP instantly, you know, and at no cost or very low cost, you’d do it. So, I’m not arguing that FTTP is a bad technology. You’ve got to remember we believe in fibre. I mean, our approach replaces most of the fibre. I mean a typical, I don’t know what it is to your house, but a typical environment would be an exchange, a customer’s premise – say that’s four km. Of that four km, 3.6 km of it is to the pillar in the street. All of that’s going to be replaced with fibre, so we’re going to replace, whether it’s 80 per cent, 90 per cent or 95 per cent of the copper run between the exchange and the customer’s premise. The only reason you don’t replace the last bit is because that’s where the vast majority of the costs are. And so you’re weighing up that cost for what you get out of it.
AK: So, to be clear, your objection to the current NBN is not in some sense technical or ideological, it’s just financial.
MT: Funny about that. Yeah.
AK: You would prefer, if possible, to have fibre to the premise.
MT: Well, if money and time were no object, I would certainly do that. That’s why we will do it anywhere. Any greenfields developments where the cost of pulling fibre optic cable is not materially different from copper, of course you’d do it – anywhere there’s demand for it, CBDs.
AK: So, I’m just saying that you’ve come up with that position without a cost benefit analysis and that cost benefit analysis should include nonfinancial benefits of –
MT: Yes. Yes, it would.
AK: It should.
MT: It should. And it will.
AK: Which have not been quantified, so you cannot really hold that position with the certainty you do.
MT: No. Of course that has got to be taken into account, but because I’m not arrogant or so convinced of my own wisdom as to believe that all, you know, that nobody else has anything to learn from, the reality is that every other comparable market, almost without exception, is taking the hybrid technology approach that we’ve described here.
So, one of the interesting things about the NBN and its genesis was that there’s no evidence that they actually took that sort of analysis into account. There’s no evidence that they noticed what was going on in other jurisdictions or that they were aware of the developing technology.
This is a business audience, so I think you’ll relate to this. The argument that is put against our approach is to say – Stephen Conroy used to do this all the time – he’d say it’s like building the Harbour Bridge with two lanes. Now, the big difference between a telecom network and a bridge is you cannot tack on an extra lane to a bridge every five years. I’m sure there’s some engineer who’ll offer to do it for you, but in practical terms you can’t do it, right.
Telecom networks are upgraded all the time. Sometimes you put in new physical channels, you know, new cables, more often. People like Sean O’Halloran’s company, Alcatel-Lucent, are selling you a smarter electronic kit to put at each end and so you’re upgrading it or you can upgrade it incrementally. So the arguments put against u say ‘Okay, you’re approach may deal with our demands today and for the next ten years say, but what about twenty years or thirty years hence?’
And this is my answer. I’ve got two answers. One, I say if you’re saying I should invest $5 million bucks today to deal with the demands we think will be around in 30 years’ time rather than $1 million to deal with the foreseeable future, my response is you’re inviting me to put $4 million dollars additional into a project on which I will get no return for ten, twenty years’ time.
But if you don’t care about the money because it’s the government’s, and a lot of people don’t, here’s the second answer. Why would you provision for the demands of twenty or thirty years hence with the technology of today? You know, when you’ve seen the rapid evolution of this telecommunications technology, when you’ve gone from DSL to ADSL, ADSL 2 , VDSL, vectored VDSL, now G.fast – and that’s all happened in a few years – why would you imagine that technology has ended? That’s like you’re trying to be a technological Francis Fukuyama, you know, the end of history.
AK: Are you concerned about the issue of inequity in the sense that some people will have fibre-to-the-node, but if you’re in a greenfields, if you happen to buy a new house in a new estate, you’re going to have fibre-to-the-home and so therefore you’re going to have faster speeds clearly or the potential for faster speeds. You’re not going to have to wait for a future communications minister to upgrade you. Is that a concern for you?
MT: No. It isn’t because the real issue is not… I mean at the moment you don’t get people rioting because some people have connected to HFC and some people have got ADSL 2 . What you get… Where you get arguments about inequity at the moment is between people who have got access to very fast broadband that, at whatever speeds, meets their demands and delivers the services and applications they value, and people that don’t, so there is inequity right at the moment. For example, if you were living on the end of a pair gain system, you’ve got no broadband at all, for all practical purposes.
And so, the virtue of our approach is that you get everybody up to speeds that will enable them to do pretty much everything you would want to do conceivably online in that – we’re talking about residential areas which is the bulk of the bill – in that residential environment. So, I guess the point is… Let’s say I’m sitting on vectored VDSL and I can get, let’s say I can get 80 megs and you’re around the corner and you’ve got a fibre connection and you can get one gig. This may make you feel good and it may give you bragging rights, but the big question is what is it that you at home can do with that that I can’t do with my service? You struggle to find examples.
You see, the thing that I think a lot of people misunderstand about speed in telecommunications is that it’s a complete misnomer which we’re all stuck with. The expression so many megabits per second, so many millions of bits per second is actually an expression of volume. It’s… The bit, the signal, propagates over the glass or the glass in the wire or network at roughly the speed, you know, at more or less the speed of… well, obviously not more, less… close to the speed of light, okay, so the speed of the propagation of the signal is pretty much the same. It’s the amount of data that can arrive simultaneously.
So, if you think it’s better to think about it as the size of a pipe, and you often hear that metaphor – it’s actually a more instructive metaphor. So, if I’m in an office, if I’m at The Australian and I’ve got, you know, 100 journalists, 200 journalists there all doing… working online using say 10 megs each simultaneously, I need a big pipe. If I’m at home, I don’t need a pipe that big. If I have a brewery or a dairy, I need a big connection to Sydney Water for my water supply. If I’m at home, I don’t.
And again it’s important to bear in mind the relationship between the size of the pipe and the volume of data you use. You, Alan may have a one gig connection. I may have a 100 meg connection or 25 meg connection. I may download more gigabytes a month than him because I spend all my time downloading movies and, you know, watching Fetch TV that Scott’s company is delivering and so I’m online all the time. Alan may not be online so much, so his… he might only use 50 gigs a month. I might use 500. So, again it’s a bit like water. If all of us decided to have three one-hour showers a day, Sydney Water would have to build another dam or something like that, but they’d sell a lot more water, but the size of the pipe into your house wouldn’t necessarily need to be any bigger, it’s just that it would be on for longer. And that’s a very important point.
AK: Malcolm, that’s all very well and it’s obviously true, however the thing is…
MT: Thank you.
AK: This is going to be by government decree. You, as minister, are going to decree that that person there is going to get a big pipe, that person there is going to get a little pipe and in fact… I mean it’s a bit unclear from your policy, but I think that there’s a provision or you’re vaguely hinting at… that if there are parts of the copper network that aren’t up to scratch, that can’t be used because it’s degraded in some way, you will build fibre in that area, right?
MT: Well, what you’d do is you look at your… your instructions to the NBN Co will say everybody… nobody is to have less than 25 megs, so that’s the design parameter, right, and so what that means is that if you have got a part of your D-side copper network that is very degraded and, let’s say, there’s been a whole history of maintenance problems because of water and so forth, you might remediate it or you might say look this this run here is costing too much, we’ll just put fibre in there. And so, you make a site specific decision.
The interesting feedback we’ve had, again from the people that run these networks, is that that maintenance cost differential between outdoor copper plant and outdoor fibre plant is either non-existent or very modest. The experience in the UK has been to date there’s no difference. In the United States where they’ve had a lot more experience, AT&T particularly has had a lot more experience, their figure is that the maintenance cost for outdoor copper plants which is say fibre-to-the-node is about average, $3 per connected household per month and the cost of the… their fibre-to-the-premise households is around half that, and so 20 bucks a year. I mean it’s not a big item.
AK: I’m really talking about the fact that… You know, when Bill Scales said it’s five minutes to midnight on the copper network, that didn’t apply to obviously the whole network. Some of the network is in better shape than others. It’s, you know, it’s very patchy.
MT: Yeah. And you’ve got to remember we’re replacing most… We are replacing most. See, if you think about the design of a fibre-to-the-node layout, Alan, and again we’re spending too much time talking about engineering, but it is exactly…
AK: That’s your fault, not mine.
MT: It’s exactly the same as fibre-to-the-premise until you get to the node. The kit in the exchange or the point of interconnection is the same. The fibre that goes out to the street corner is the same. It’s just that at the street corner you have a powered electronic device which hooks into that last bit of copper, so most of the copper is being replaced or overbuilt.
AK: So, it’s not really… I mean just to go back to what you just said, it isn’t… what you’re promising is not really a fibre-to-the-node network, it’s a minimum 25 megabits a second network however delivered. Is that a reasonable characterisation? Come on.
MT: Well, no, no, no, it is a national broadband network that will deliver very high speeds to everyone which will ...
AK: Well, 25 megabits a second. That’s what you’ve said.
MT: Well, no. Well, that is the floor. I mean, the vast majority of people in the fibre-to-the-node areas will have 50 megs or better. I mean you can… If you look at… There’s a good table or graph from Alcatel that we’ve reproduced on our website in the FAQ section which shows the speeds that are available at certain distances. The only reason I’ve set 25 megs is that if you were doing it in a commercial sense, for example, and you had someone that was… Hang on, just let me finish… you had someone with say a 4km copper run from the node, a commercial telco might say bad luck buddy, you know, you’re still going to get a couple of megs. Because we’ve set that floor, that means that the NBN Co will have to build a fibre extension module or do something to make sure that no one falls below that.
AK: Yeah. And I don’t think it matters why you’ve said 25. It just… That’s what you’ve said. That’s it. And it really is a question of it doesn’t matter how it’s delivered, that’s what you’re going to do.
MT: Yeah. That’s… Well, I think that’s right. I think that the Y-line technology, whether it’s fibre-to-the-prem, fibre-to-the-basement, fibre-to-the-street corner, as it were, is not relevant.
AK: One of the reasons that you’ve… that you’re pushing your proposal is that it’ll be faster to complete, faster to build. You’ll get there more quickly. There are two reasons why the NBN Company has been delayed. One was the negotiations with Telstra took two years and second was some of their subcontractors weren’t up to scratch; they didn’t have enough fibre splices, they just didn’t have sufficient capacity in Australia to do it in the time that was required.
Now, you’re also going to have to negotiate with Telstra. You’re going to have to start again, basically. You’re going to have to negotiate a whole new thing with Telstra and you’re going to have the same contractors and subcontractors doing the work. So, why would you think it’s going to be quicker? I mean you could be stuck with Telstra. People could be hanging on with NBN doing nothing for another two years while you negotiate your new deal with Telstra.
MT: Well, that won’t happen. I mean the current…
AK: But you can’t be sure of that. I mean that’s certainly what Conroy and Mike Quigley said, we’ll be fine with Telstra, it won’t take very long at all, and of course it did, it took two years and, you know, they were surprised.
MT: You let me know when you’ve stopped. Let me know when you’ve stopped and I’ll answer the question. No. But I mean it, seriously, because I started answering and then you talked over the top of me, so… I mean I’m being… But can I answer the question now? Is that alright?
MT: Okay, good. The reason I’m very optimistic is that the changes to the definitive agreements are relatively modest. They simply require us, in practical terms, to get access to the D-side copper. Nothing else changes. Nothing else needs to change anyway. So, I’m very optimistic about that. As far as the contracting side of it, Alan, the assumptions in the NBN Co business plan about the number of premises they can pass has been proved to be really over optimistic and that 2021 finish date is seen to be a bit of a fantasy. I mean, they’ve got their peak rate of passing premises is I think 6800 a day which is laughable it’s so over the top.
And clearly what happened was Conroy set 2021 as the end date and then they back-solved that by punching in whatever assumptions they needed to get there. Now, the advantage of fibre-to-the-node is that there is so much less civil work because the ducts, that’s to say the pipes, between the exchanges and the distribution points are much bigger and there are more of them, pulling the fibre through them is pretty straightforward and you are not, other than for remediation, disturbing the copper between the node and the customer’s premises, so it’s much quicker. Again an example, in the UK, British Telecom’s Openreach has passed and is able to connect with fibre-to-the-node about 19 million premises in 3½ years, so that is, you know, these deployments are very fast. That’s why telcos are doing them. I mean the speed is a very big part of it.
AK: That thing about Telstra was, I think, the main reason I wrote that you need to dump your policy which obviously you’ve failed to do.
MT: No one’s perfect.
AK: But the negotiation with Telstra… I mean they are in a pretty strong position, wouldn’t you say? You’ve gone to an election. You’ve won an election with a policy. You’re committed, right. They are in a strong… You’d like to be in that sort of negotiating position, wouldn’t you, in your investment banking days?
MT: Yeah, I guess so. My impression is that Telstra wants to keep its shareholders whole. We’ve said that is our goal, too. They want to get the NBN Co built. That’s our goal, too. The sooner it is built, the better it is for them. The PSAA payments that accrue to Telstra as premises are cut over to the NBN obviously wouldn’t be increased in dollar value, but they’d be accelerated in terms of delivery in our approach. So, in that sense, from a NPV point of view, it would be somewhat better. And look, the analyst community – they’re like the betting market, I mean sometimes they get it wrong, generally they don’t – the analyst community has generally come to the conclusion that the Coalition’s NBN policy is somewhere between neutral and a net positive for Telstra, not a huge positive.
So, I’m very confident we can get something sorted out, but I’m not, as you know, I’m not unfamiliar with negotiations including with Telstra for that matter, so I’m not being unrealistic about this.
AK: And speaking of Telstra, could you tell us how it will still be structurally separated if it’s also running its HFC cable as an infrastructure asset as you foreshadow in your policy? You’ve, I think, foreshadowed both things; structural separation and that Telstra will be able to compete with the NBN using its HFC network presumably while also being a retailer. So, will you insist on the HFC business being fully separated from Telstra?
MT: Our assumption is that we will. Our assumption is that nothing changes in the model, the policy, we have assumed that nothing changes with respect to the HFC other than that we would not overbuild the HFC as a priority. A key part of our policy is we will upgrade broadband and services, be it fibre-to-the-premise or fibre-to-the-node, in those areas with the greatest need and or the greatest demand, which is generally the same.
So, the HFC areas where people can get a 100 megs, you wouldn’t be overbuilding them with either technology, you know, in the next three years. I am deeply troubled by the idea that the NBN Co and the government has paid Telstra and Optus for that matter a lot of money to decommission their HFC networks which are delivering and are capable of delivering very high speed broadband. Everywhere else in the world it has been, and it was until recently in Australia, an object of government policy that there should be, wherever possible, facilities-based competition. And typically in most developed markets the broadband Y-line competition is between the telco which has generally gone to fibre-to-the-node and a cable company which has because of, you know, well the Docsis technology has been able to deliver broadband data over its HFC network which of course, as we all know, is built for, you know, delivering pay TV. So, I would like there to be facilities competition, but I don’t think Telstra has worked out what it wants to do quite yet and so we’ve parked that.
AK: But have you worked out what you want to do? I mean you’ve said structural separation. Does that mean you will insist that Telstra demerge the HFC network into a separate company? It must. It must mean that.
MT: Well that structural separation does mean that. I think that you’ve got to remember that the NBN Co is committed to paying Telstra a lot… NBN Co has effectively bought both the HFC and the copper and the traditional copper. So, there are all sorts of options. I mean one option could be that the HFC becomes part of the NBN Co network.
AK: Oh so, that is an option for you?
MT: Well, why not? Why wouldn’t it be? I mean you’re paying for it.
AK: But then it becomes a monopoly. There isn’t facilities-based competition. That’s what you’re in favour of.
MT: That is another aspect I agree. I’m saying to you there’s no… The HFC is… And we’ve been very clear about this. We’ve been very clear that we’re open to looking at different solutions there. One possibility is that is operated by Telstra as a wholesale asset, so then you would have a qualification to the structural separation objective, but again I’m uncomfortable with that, but there are a number of options there and of course one option is we just continue with plan A, but I think that –
AK: Well, there’s just comfort all round, isn’t there? I mean –
MT: Well, there is. There is.
AK: That’s the problem.
MT: No. Well, it is a… That’s the problem, it’s not the only problem. There are plenty of problems.
AK: Okay. It’s a problem.
MT: But I’m just saying you know, there’s got to be a better solution, it seems to me, than paying Telstra billions of dollars to switch off an HFC network that is and is capable of delivering very high speed broadband now and into the future. On one level that is an extraordinary episode of asset destruction, so there’s got to be a, you know, there are a number of different ways you can address it.
I’ve got a very clear view about what Telstra wants to achieve and what we want to achieve in respect of the traditional copper, if you like, that the telephone lines that are being used for DSL, etc, but the HFC there’s more talking to be done. But it’s not a near-term problem because it’s not going to be a near-term priority for overbuilding. You know, where we live we’ve got HFC, we’ve got a 100 meg service. I don’t regard myself or my neighbours as being, you know, high target priorities for the NBN to overbuild. I’m sure there are plenty of people that have got dreadful broadband or no broadband that should be our targets.
AK: Yeah. So, but can you see that perhaps maybe it’s the problem. I don’t know. But at the moment the NBN that we’ve got is expensive, it’s slow, it’s all those things that you’ve described, however everyone knows what’s going on. It’s quite clear what’s happening. It’s certain this is going to be built. There’s a certain percentage of the nation going to be covered by fibre, then there’s going to be X amount of satellite. If you win the election, nobody knows what’s going to happen. I mean anything could happen.
MT: Well, that’s not quite true. I mean there will be a national broadband network in which everyone will have access to very fast broadband. You say that things are certain with the current NBN. I would say this to you, Alan, there are a couple of things that are uncertain. You don’t know how long it’s going to take. It could take 20-plus years. You don’t know how much it’s really going to cost. It could cost a $100 billion or more. You don’t know and they don’t know how to connect customers in multi-dwelling units, apartment buildings, office buildings.
I mean I’ll give you an example. In south Perth the NBN has said it has passed 1000 premises. Fantastic. Do you know how many are capable of getting a connection if they want one? Eighty-seven. They have passed all of the premises, all of the buildings in the Townsville CBD. Chamber of Commerce there tells me that there are a number of them that can get a connection, 4 per cent. Ninety-six per cent cannot get a connection if they want one because they haven’t worked out how to get the service into multi-occupier buildings – office buildings or apartment buildings. So, to say that the NBN Co offers a degree of certainty, it doesn’t. I’m canvassing, proposing technologies that you know will work.
Our approach will connect multi-dwelling units. You know something? It is so straightforward. You don’t have to drill holes in people’s walls. You don’t have to fight up through the risers. The fibre comes down the street. You install a node in the basement or the telecom room of the building, you hook it into the copper LAN in the building and away you go. And the person who’s living there who just wants a telephone, nothing changes in that apartment. The young family that wants masses of high definition video and gaming and all that stuff, they get a screamingly fast connection. It is so much simpler which is why that is what is being done just about everywhere in the world. I mean, in Korea.
Here’s how crazy the politics of the NBN is. The company has gone to the government and said we should do VDSL in multi-dwelling units and apartment buildings. The government knocked it back because they want to be able to say as a matter of a political promise every premises, whether it is a cottage in the suburbs or a one bedroom unit in Kings Cross, will get fibre-to-the-premise. They wanted to have that promise. In Korea brand new apartment buildings which I’ve seen, I’ve inspected. I’ve seen there in my own eyes, these amazing towers – brand new towers are cabled, the interior of the local area network in the building is category five copper. They don’t even run fibre optic cables into new apartments there. Now, I’m sure there are some that they have, but you know it’s very interesting. The approach we’re taking is very much the global norm and I think that’s sensible. I mean, you’re dealing with public money.
AK: I think we have some time for questions from the audience and, do we have some roving mikes? Let’s mobilise the mikes.