Chapter 1 - Introduction
Conduct of the inquiry
1.1
On 10 February 2011 the Senate, on the recommendation of the Selection
of Bills Committee, referred the provisions of the National Broadband Network
Companies Bill 2010 and the Telecommunications Legislation Amendment (National
Broadband Network Measures – Access Arrangements) Bill 2010 to the Environment
and Communications Legislation Committee for inquiry and report by 16 March
2011.[1]
1.2
The committee advertised the inquiry on its website and in the national
press and invited submissions by 24 February 2011. The committee also
invited submissions directly from relevant organisations and associations,
particularly within the information, communications and technology sector. The
committee received 24 submissions. The names of persons and organisations
that made submissions to the inquiry can be found in Appendix 1 to this report.
1.3
Two public hearings were held; one in Canberra on 4 March 2011 and one
in Sydney on 9 March 2011. The names of witnesses that appeared at the hearings
may be found in Appendix 2. The committee thanks submitters and witnesses for
their contributions.
Background to the bills
1.4
On 7 April 2009, the government announced plans to establish a new
company to build and operate a new high speed national broadband network (NBN).
The NBN will be a ubiquitous, wholesale-only, open-access network, to be rolled
out simultaneously in metropolitan, regional and rural areas.[2]
1.5
On 7 April 2009, the government also announced that it was seeking views
on options for reforming the existing telecommunications regime to make it work
more effectively, particularly during the transition to the National Broadband
Network. A discussion paper Regulatory reform for 21st century broadband
was released on that date, with submissions due on 3 June 2009.[3]
1.6
When it was first announced, the government expected that the network
would involve an investment of up to $43 billion to provide up to 100 megabits
per second broadband to 90 per cent of premises by fibre, and 12 megabits
per second to all other premises by wireless or satellite.[4]
1.7
More recently the government has announced an increase to the fibre
footprint: 100 megabits per second to 93 per cent of premises by fibre,
and 12 megabits per second to seven per cent of premises by fixed wireless (ie
not mobile wireless) or satellite. NBN Co estimates a total funding requirement
to 2021 of $40.9 billion, being $27.5 billion of government equity, and $13.4
billion of debt funding.[5]
Forecast revenue until 2020 is $20.8 billion, and the expected internal rate of
return is 7.04 per cent, well in excess of the current five year government
bond rate of 5.38 per cent.[6]
1.8
On 9 April 2009, NBN Co was established as a government business
enterprise to build the NBN.
1.9
Following the receipt of submissions to the discussion paper, on 15
September 2009 the government introduced the Telecommunications Legislation
Amendment (Competition and Consumer Safeguards) Bill 2009. Among other things,
this bill was concerned with 'addressing Telstra's vertical and horizontal
integration'.[7]
In this regard, the bill provided for Telstra to voluntarily structurally
separate or be required to functionally separate.
1.10
As the explanatory memorandum noted at page 1:
Structural separation may, but does not need to, involve the
creation of a new company by Telstra and the transfer of its fixed-line assets
to that new company. Alternatively, it may involve Telstra progressively
migrating its fixed-line traffic to the NBN over an agreed period of time and
under set regulatory arrangements, and sell or cease to use its fixed-line
assets on an agreed basis. This approach will ultimately lead to a national
outcome where there is a wholesale-only network not controlled by any retail
company–in other words, full structural separation in time. Such a negotiated
outcome would be consistent with the wholesale-only, open access market
structure to be delivered through the National Broadband Network.[8]
1.11
This makes explicit the possibility that the National Broadband Network,
beyond being a significant infrastructure project, will be the means by which
the structural separation of Telstra will be effected.
1.12
Following introduction of the bill, Telstra and NBN Co began discussions
and negotiations to see whether the 'negotiated outcome' contemplated in the
explanatory memorandum–the migration of Telstra customers onto the NBN–could be
achieved.
1.13
In December 2009, NBN Co issued a product consultation paper describing
the high level view of the proposed wholesale product and the network
architecture. This was followed by a series of industry briefings in Sydney and
Melbourne.[9]
1.14
On 24 February 2010, exposure drafts of the present bills were released
for public comment.[10]
1.15
In May 2010, the government released an Implementation Study by McKinsey
and Company and KPMG. The study found that high speed broadband could be built
on a financially viable basis with affordable prices for consumers. The study
made 84 recommendations covering technology, financing, ownership, policy
framework and market structure.[11]
1.16
On 20 June 2010 Telstra and NBN Co entered a non-binding Heads of
Agreement that would give NBN Co access to certain Telstra facilities and allow
for progressive migration of Telstra's copper and cable traffic onto the NBN,
an arrangement that if formally concluded and implemented will lead to the
structural separation of Telstra as contemplated by the Telecommunications Legislation
Amendment (Competition and Consumer Safeguards) Bill 2009.[12]
1.17
On 28 September 2010, the Telecommunications Legislation Amendment
(Competition and Consumer Safeguards) Bill 2009 lapsed at the end of the
parliament.
1.18
On 28 October 2010, the government introduced a nearly identical bill,
the Telecommunications Legislation Amendment (Competition and Consumer
Safeguards) Bill 2010, which received royal assent on 15 December 2010. As well
as providing for the separation of Telstra, the bill amended Part XIC of the Competition
and Consumer Act 2010 by reforming the telecommunications access regime to
reduce delays and opportunities for gaming and provide upfront certainty on
access prices and terms and conditions. NBN Co will be subject to this reformed
access regime in addition to the proposed requirements set out in the Access
Bill.
1.19
On 20 December 2010, the government released NBN Co's corporate plan,
and a 'statement of expectations'. According to the government, the Corporate
Plan showed that:
'the National Broadband Network (NBN) will provide all
Australians with world class broadband on a financially viable basis at
affordable prices. The Corporate Plan shows taxpayers will get their investment
back, with interest; the NBN will provide a rate of return significantly higher
than the government bond rate; and all Australians will gain access to this
state-of-the-art network.'[13]
1.20
The statement of expectations sets out the government's policy
objectives for the NBN including: coverage; legislative and regulatory
frameworks; ownership arrangements; funding; planning; reporting and
performance management.[14]
1.21
On 10 February 2011, Telstra and NBN Co announced that they had
finalised key commercial terms to allow for the more efficient rollout of the
NBN. These pave the way for NBN Co to use Telstra's assets to roll out the NBN
and for Telstra to decommission its copper network.[15]
1.22
The first NBN services were officially launched in August 2010 in the
Tasmanian communities of Scottsdale, Smithton and Midway Point. The fibre
network is now under construction at five first release sites on the mainland
at Townsville (Qld), Minnamurra and Kiama Downs (NSW), Armidale (NSW), Willunga
(SA) and Brunswick (Vic).[16]
Summary of the bills
1.23
The National Broadband Network Companies Bill 2010 (the Companies Bill)
contains provisions ensuring that NBN Co operates on a wholesale-only basis. It
provides that the Australian Government must retain full ownership of NBN Co
until rollout is complete, and it establishes the framework for the eventual
sale of NBN Co.
1.24
The Telecommunications Legislation Amendment (National Broadband Network
Measures – Access Arrangements) Bill 2010 (the Access Bill) has provisions
requiring NBN Co to offer services on an equivalent basis, with discrimination
only allowed where it aids efficiency and in other limited circumstances,
subject to oversight by the ACCC. It has level playing field provisions
affecting carriers who build or upgrade certain fixed-line superfast access
networks after the introduction of the bill into parliament.
Summary of submissions
1.25
Submitters and witnesses were unanimous about the importance of the
passage of the bills.[17]
They stressed the importance of broadband for business, health, education and
research purposes, especially in rural and regional areas.
1.26
For example, in relation to health services and health research, the
Group of Eight, a coalition of leading Australian universities, described the
possibilities:
High-speed broadband network provides the capacity for
distant doctors or patients—or midwives for that matter—to have real-time
interactions with specialist colleagues in an urban setting if they need it... Broadband
connectivity allows clinicians, wherever they are, to engage in things like
grand rounds—when patients of interest are discussed in teaching hospitals,
people who are not physically in that building can connect in real time and
participate in the questions and answers... [In medical research] it can take
years to get thousands of people in a normal randomised control trial. We can
do online automated randomised control trials with people in their houses in a
few months.[18]
1.27
In relation to the potential benefits for the education sector, the
Association of Catholic School Principals of NSW said:
E-learning is truly already a reality in our schools. We have
moved from paper to e-books to personalised learning and now to e-publishing in
a relatively short time. Scalability is necessary to allow us to continue to
grow, as I said, and to provide 21st century skills...
Our school cannot meet the needs of the 21st
century learner with 20th century infrastructure. Hence, the
broadband is so important to us. Students are, as we know, the very greatest
asset we have. The children of Australia, we believe, deserve an education that
enables them to be global citizens of the 21st century. The 21st
century classroom is currently grinding to a 20th century halt
without fast reliable access to the internet. As educators and as
parents—myself as a grandparent—we dream of the possibilities for our children
and believe that national broadband really does have the potential to make some
of these dreams a reality for our students.[19]
1.28
The Council of Small Business Organisations of Australia noted the
opportunities of broadband for small business:
There are 2.4 million small businesses. They are diverse, but
I think I can say with confidence that the greater bulk of them want this
[access to affordable, high‑speed broadband] for competitive reasons as
much as anything... The other group of people that are really fascinating are
women on farms. I have seen a few of them use the internet quite well to sell
products... I know one young man is manufacturing and selling golf clubs online
and doing quite a good job of it.[20]
1.29
The ACTU stressed the need for universal access at a standard wholesale
price to bridge the 'digital divide':
If you examine the current take-up rates of access to
broadband, it falls as the income of your family falls. In other words,
low-income families or people on ordinary incomes were much less likely to have
a home broadband connection than people who are more well off. In our view that
is an unsustainable outcome and not an outcome which promotes social utility.
An NBN program which provides for universal access and a universal wholesale
price, we say, would be the best method to ensure that Australians have equality
of access to broadband technology.[21]
1.30
Nevertheless, some submitters had concerns about aspects of the bills or
recommended amendments on various matters which are discussed in chapters 2 and
3.
1.31
Chapter 2 has further details of submissions on the Companies Bill and chapter
3 has further details of submissions on the Access Bill.
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