Dissenting Report by Coalition Members and Senators
1 SUMMARY
The Joint Committee’s fifth half-yearly review of the
National Broadband Network has again resulted in a report on the rollout from
the Government and a separate dissenting report from the Coalition. This was
also the outcome from the fourth half-yearly review.
Given the contentious nature of the debate over the NBN and
approaching Federal Election this is not unexpected. Yet in some ways the
facts on the NBN are clearer (and more sobering) now than they have ever
previously been:
n The fibre rollout is
well behind schedule. The original NBN Co 2011-2013 Corporate Plan estimated
fibre would be available at 950,000 brownfields and 319,000 greenfields
premises by June 2013. In reality the NBN’s fibre network had passed 71,000
brownfields and 32,000 greenfields premises by May.
n Similarly, estimates
of usage are similarly below forecasts. The number of premises with active
service over NBN fibre by June will be a tenth or less of the number projected
in 2010.
n NBN’s fixed wireless
network is also behind schedule, while the interim satellite service (the most
successful part of the NBN so far) will run out of capacity for new users some
time in 2014.
n NBN Co’s
relationships with key contractors are in disarray, while its design and
oversight of the rollout have been undermined by poor geospatial data, skills
shortages and its inability to measure and continuously refine and improve the
building process. .
n NBN Co itself
continues to burn through cash and spend lavishly on headcount, despite its
failures in rolling out the network and revenue generation. By June close to $5
billion will have been invested and billions more accumulated in liabilities.
n The governance and
management of NBN Co has recently become a matter of legitimate public
speculation, with Senator Conroy doing little to inspire confidence or quash
rumours by refusing to allow NBN Co’s CEO to respond to questions on the
matter.
n Finally, several
recent incidents involving the handling of asbestos unearthed during the
rollout have underlined how dangerous the work of rolling out an NBN can be,
and the paramount importance of complying with all occupational health and
safety rules.
For anyone wondering if Labor still sees the NBN as a policy
it can deliver as promised, the recent 2013-14 Budget confirmed it cannot. In
the Budget the Government slashed funding for the NBN by $3.5 billion (or 20
per cent) over 2012-13 to 2014-15 compared to the investment for those years
estimated in the October MYEFO, which reflected the revised NBN Co 2012-2015
Corporate Plan.[1]
The Budget cuts are "a consequence of delay".
They guarantee the implausible targets in the 2012-2015 Corporate Plan won’t be
reached – the rollout is years behind, and there isn’t enough money.
While much of the information summarized in this report is
disappointing, in that it recounts missed milestones, wasted taxpayers’ funds
and poorly executed policy, this does not discredit the concept of a National
Broadband Network – only the manner in which the Government has so ineptly
implemented it.
2 NBN ROLLOUT – TARGETS
2.1 Brownfields Fibre Falling Further Behind
Schedule
The NBN has failed to meet every significant operational
target it has set itself since its inception in 2009, and regrettably the
latest six months of the rollout did not improve its record. The largest gaps
between projected achievement and actual performance have been in the rollout
of the fibre network to 10 million households and businesses in brownfield
(established) areas.
In its original NBN Co 2011-2013 Corporate Plan, released in
December 2010, NBN Co estimated it would pass 950,000 brownfields premises by
the end of June 2013.[2]
In August 2012 the revised NBN Co 2012-2015 Corporate Plant
slashed the target to 286,000.[3]
In March 2013 the target was again reduced to between 155,000 and 175,000
premises.[4]
And as of mid-May, NBN Co’s fibre network had passed 71,000 brownfield homes.[5]
Key issues holding back the brownfield rollout include:
n Inaccurate geospatial
address data, which has complicated design.
n Designs incompatible
with efficient construction practices.
n A schedule NBN Co and
its contractors have unable to meet.
n Construction prices
insufficient for NBN Co’s contractors to operate profitably.
n Shortages of skilled
workers such as fibre splicers.
n Inadequate investment
in measuring and improving productivity and quality.
n Failure to secure
access to electricity poles to deploy fibre aerially.
The results have been so underwhelming that in the Northern
Territory the NBN Co has dismissed its contractors and taken direct control of
construction.
NBN Co continues to fall woefully short of the capabilities
upon which its business plan depend. The original 2011-2013 Corporate Plan
estimated the company would be passing 5200 houses with fibre each working day
by March this year.[6]
And even the revised 2012-2015 Corporate Plan set a target for the 2013-14
financial year of running fibre past 1028 brownfields premises each day.[7]
In reality, over the half-year to December 2012, NBN Co
passed 137 brownfield premises each working day.
So far in 2013 it has passed 353 premises per working day (with the caveat that
it is far from clear all of the premises reported can actually obtain service
were it to be requested).[8]
Every time NBN Co reduces or misses its rollout objectives,
its management claim the company’s
acceleration in later years will be even steeper, to make up the shortfall.
But the repeated failure to ramp toward the ‘volume
rollout’ long
promised by NBN Co’s
management and the Government raises questions as to whether the current
approach to construction is scalable at all, much less to the levels needed to
achieve the Corporate Plan.
Meanwhile NBN Co has begun using alternative avenues to
boost its numbers and make up for its failure to meet construction targets.
It recently purchased FTTP assets serving 8,500 houses from
the TransACT division of iiNet.[9]
Notably, NBN Co’s
cost per premise in the deal was about $1050 –
a fraction of the amount it has spent on its own fibre network.
NBN Co also reportedly reached a commercial agreement with
Telstra to assist it with early network preparation work in five 5 Fibre
Service Area Modules (FSAMs) covering 15,000 premises. This part of the
building process normally takes NBN Co about five months.[10]
The Coalition welcomes a more pragmatic approach by NBN Co
to infrastructure built by other parties. But Labor’s NBN policy still centres
on eventually overbuilding most existing network assets, whether capable of
very fast broadband or not. And there is evidence of continuing slippage in
its construction timetable, including over the past two months.
In a 19 April presentation to the Joint Committee, NBN Co
claimed it would pass approximately 107,000 premises in brownfield areas with
fibre by the end of May.[11]
Yet as the graphs reproduced above show, on 30 May NBN Co presented evidence at
a Senate Estimates hearing suggesting it had passed 95,000 premises by the end
of May – 11
per cent short of an objective articulated only a month earlier.[12]
Recommendation:
As the Coalition has repeatedly urged on previous
occasions, NBN Co should undertake a rigorous analysis of the alternative
options to its current FTTP model for broadband in brownfield areas, including
options such as FTTN and upgrade of the existing HFC networks. The most
cost-effective solution for very fast broadband will vary from area to area,
but in many cases will involve re-use of existing network assets.
2.2 Greenfields Fibre Rollout Slower in 2013
Greenfields (or newly developed) areas, where the Government
in 2010 appointed NBN Co provider of last resort in a manner that inflicted
lasting damage on a previously competitive market served by private
infrastructure builders and operators, remain problematic. There are still
reports of lengthy delays, of cases where NBN Co hasn’t provided fibre but
won’t permit developers to break contracts and seek an alternative, and of
areas where responsibility for providing infrastructure is unclear.
NBN Co’s key problem in greenfields has been lack of access
to backhaul, since many newly built estates are distant from its transit
network and 121 Points of Interconnect. Since the start of 2013 the rate at
which NBN Co runs fibre past greenfields premises has plunged 81 per cent –
from an average of 129 premises each working day over the six months to
December 2012, to an average of 24 premises each working day this year.[13]
Since 2010 NBN Co has twice lowered its greenfields
deployment targets for June 2013:
a.
December 2010, NBN Co 2011-2013 Corporate Plan: 319,000 premises passed.[14]
b.
August 2012, NBN Co 2012-2015 Corporate Plan: 65,000 premises passed.[15]
c.
March 2013, downward revision to 35-45,000 premises passed.[16]
For a time during the interval covered by this report it
appeared even the third target might be out of reach. But documents presented
in May at Senate Estimates state that greenfields premises passed with fibre
increased from 27,860 premises at the end of March to about 32,000 at the end
of May.[17]
If this accelerated rate of deployment over the past two
months is maintained, NBN Co will meet the greatly reduced mid-2013 target made
public in March.
One matter of concern is that in striving to do so, NBN Co
has reportedly used infrastructure owned by rival companies without
authorisation in an attempt to accelerate its greenfield efforts.[18]
Lack of accurate GNAF address data continues to add cost and
complexity to the rollout. In October 2012 NBN Co CEO Mike Quigley stated: “By
far the worst, most inaccurate, most difficult in terms of addresses is new
developments— greenfields. You can imagine why: sometimes they are lots…they
have got different names…the names change.”[19]
Head of NBN Co’s greenfields rollout Katerina Stapleton
confirmed backhaul remains a key constraint in a recent interview with IT
News: “Connecting new developments is a
particularly challenge in areas where NBN Co hasn't got an existing network to
connect premises to, and the rollout relies on a number of critical factors
such as access to pit and pipe infrastructure in which to install.”[20]
Recommendation:
The NBN urgently seek the increased involvement of the
private sector in greenfields areas, preferably as a source of capital for
construction and ownership/operation of wholesale open access networks in these
areas as well as of construction expertise.
2.3 NBN Failing to Connect Multi Dwelling Units
In May 2011, the NBN Co put out a request for proposals for
MDU cablers. The RFP stated the NBN was looking for companies to carry out
“installing fibre cabling and equipment within common areas of existing MDUs
using pre-supplied detailed designs and bills of material”.[21]
As of December 2012, the NBN had still not signed contracts
to connect MDUs in Queensland, Western Australia, South Australia and the
Northern Territory. This failure should be considered alongside the broader
failures of the greenfields rollout in WA, SA and the NT in particular, where
NBN Co has had to dump its rollout partner.
The NBN noted in its 2012-2015 Corporate Plan that
difficulty connecting MDUs had led to increased capital costs: “NBN Co’s
experience in initial deployment sites has highlighted the challenges for
connecting premises in MDUs and additional costs have therefore been embedded
in the 2012-15 Corporate Plan.”[22]
Mr Mike Quigley stated in a public hearing NBN Co is
blending the costs of connecting SDUs and MDUs:
“I now turn the page to the next part, which is the next
biggest component, which is the $9.8 billion of the customer connect. That is
the bit that goes from the multiport, the connection in the street, into the
home. It is comprised of two parts: the drop and then the in-premises activity.
We did a number of initial sites—several thousand—on a different model and the
cost of those was $2,400. We got some learnings from that, we changed the model
and now we are proceeding into volume. That is, once again, several thousand.
This is a blend, by the way, of SDUs and MDUs—single dwelling units and
multi-dwelling units. The volume actuals we are getting are around $1,100,
which is in fact right on our corporate plan estimate of $1,100.”[23]
Given that any joint figures on cost would be heavily skewed
towards the average cost of connecting SDUs due to the extremely low number of
completed MDU connections, this is likely to provide a misleading picture of
the true costs of connecting MDUs.
Tellingly NBN Co offered no evidence to support its
assertion that MDU connections are costing on average around $1,100.
It is also of concern that NBN Co, despite being aware of
technological options that could reduce the cost of the rollout, such as VDSL,
has not undertaken any assessment of their potential:
Mr TURNBULL: You have had briefings, no doubt, from Mr
Quigley's former colleagues at Alcatel about the performance of VDSL vectoring?
Mr McLaren: Yes, we have absolutely discussed with our
vendors what experience they have around the world.
Mr TURNBULL: Mr Quigley, have you done any analysis of
what cost savings would be available on your plan—the current plan—if that were
undertaken?
Mr Quigley: Sorry? If what—
Mr TURNBULL: If you were to do a portion of the
brownfields rollout with what is called fibre to the node—but we are talking
about a vectored VDSL solution.
Mr Quigley: No, we have not.[24]
The NBN implementation study found that MDUs account for 34
per cent of premises in Australia.[25]
There are 431,000 buildings with 2 to 5 premises, accounting for a total of
1.135m premises. There are 119,000 buildings with 5 to 25 premises, accounting
for a total of 1.268m premises. And there are 20,000 buildings with 25 or more
premises, accounting for a total of 1.211m premises.
It is a great concern that so little progress has been made
on connecting such properties and so little information is available on the
cost of doing so.
Recommendations:
The NBN publish a register of all MDUs it has reported
as ‘passed’ by the network but in reality unable to connect to it, along with
the timetable and nature of any proposed solutions, to allow residents and body
corporates to see when services will become available.
If premises in an MDU cannot use the network, they be
excluded from reported ‘premises passed’.
The NBN immediately investigate international
experience connecting premises in MDUs using existing internal wiring,
including lines suitable for VDSL Vectoring.
The Shareholder Ministers' Statement of Expectations
to the NBN Co be amended so NBN Co is no longer expected to terminate fibre at
each premises in an MDU.
2.4 Fixed Wireless Rollout Also Behind Schedule
The Australian Financial Review[26] on 5 June reported that
even in the best case scenario, the NBN Co wireless network will cover just
31,291 premises by the end of June. This represents only 45 per cent of the
70,000 target.
Reasons reportedly given by the Minister for this failure
include unexpectedly high levels of community objections during planning
processes and the presence of large trees in the fixed-wireless footprint.
The Minister also pinned responsibility for the delays on
the technology chosen by the Government for the wireless rollout, saying it
could not penetrate trees and dense foliage in the same way as mobile phone
signals can.[27]
At least one industry expert, Ovum’s David Kennedy, has
publicly questioned the Government’s choice of technology for the NBN wireless
rollout:
Mr. Kennedy: "They've got a high-frequency
spectrum, which is more susceptible to interference and it's a line-of-sight
technology so if there's a tree in the way it's going to interfere. Using
something like 700Mhz spectrum [most of which the government auctioned off in
May] would definitely be better but it's very expensive. They've clearly
over-estimated the number of homes they can connect with the network
architecture they've agreed on."[28]
Most people would not regard the presence of tall trees and
dense foliage in rural Australia as unexpected, but it appears that NBN Co did
not adequately consider the potential for trees to affect the wireless rollout.
NBN CTO Gary McLaren’s evidence to the Senate Environment
and Communications Committee on 30 May 2013 is that NBN Co underestimated the
impact of vegetation on the wireless rollout:
Mr. McLaren: “We have always expected there will be
some areas, mainly due to vegetation—trees and the like—that will cause those
installations to not be able to pass through that qualification step and we
will have some that we will not be able to fulfil.
“We are seeing those being slightly higher than we would have
originally expected. We believe that could be because a lot of our services are
currently in the Ballarat region, which is a region in Victoria on the Great
Dividing Range. It is heavily forested and we are dealing with quite a lot of
forest and vegetation. That means that we are having to take that order and
park it for our satellite service, when it is available, to be able to deliver
those services.”[29]
The impact of these delays is twofold. First, families and
businesses waiting for the NBN wireless service will be waiting even longer.
Second, demand for NBN satellite services may be larger than expected. As a
result, it may be necessary for NBN Co to update its demand estimates for the
long term satellite service, and consequently update cost estimates and rollout
timeframes.
Recommendation:
NBN Co provide JCNBN with an updated estimate of the
total number of premises in the final NBN wireless footprint and an updated
estimate of the total cost of the long-term satellite solution in light of any
alterations to the final wireless footprint.
3 NBN ROLLOUT – OPERATIONAL ISSUES
3.1 Engagement with Civil Contractors
The very disappointing performance of civil works
contractors against mutually agreed rollout objectives, and NBN Co’s apparently
free-wheeling approach to advance payments to contractors are both matters of
concern for Coalition Members and Senators.
Clearly NBN Co’s engagement with the civil contractors
ultimately responsible for the bulk of actual construction is one of the most
pivotal parts of the project, given the construction model chosen. Crucial
aspects include negotiating prices and terms both sides can live with; ensuring
transparency and accountability in both directions; ensuring occupational
health and safety standards are enforced; designing incentives that align
contractor and NBN Co interests, and devising a system of measurement and
monitoring to benchmark performance, reduce waste and continuously improve work
processes.
From the outset NBN Co’s cost expectations appear to have
been unrealistic, leading to its extraordinary allegations of price fixing and
price gouging by contractors in April 2011, and making pricing the key issue to
the detriment of other considerations.
Yet having driven down prices to levels where contractors
were unprofitable, NBN Co was willing to spend freely to attempt to accelerate
the rollout.
Up to the end of February 2013,
around 55 per cent of money paid to contractors for committed work was in the
form of prepayments for workforce mobilisation and other pre-deployment
activities.[30]
Some $140 million was paid out, including $51 million to a contractor that
after 20 months had not delivered a single premise passed by fibre.
|
Contractor
|
Pre-Payments
|
|
Contractor
|
Target
(June 2013)
|
Planned
(Feb 2013)
|
|
Silcar
|
$52.4 million
|
|
Silcar
|
140,184
|
70,518
|
|
Transfield
|
$20.8million
|
|
Transfield
|
30,019
|
23,398
|
|
Syntheo
|
$50.9 million
|
|
Syntheo
|
47,000
|
12,219
|
|
Visionstream
|
$12.6 million
|
|
Visionstream
|
23,174
|
14,449
|
According to media reports, by
February 2013 huge shortfalls against the NBN Co’s deployment targets were
apparent for all of its major contractors. As
the table shows, by the end of February the prime contractors on average
only were planning to achieve 50 per cent of their June 2013 targets.[31]
Unacceptably poor performance
from Syntheo resulted in the Northern Territory rollout being reassigned to the
direct oversight of NBN Co.
Senator Stephen Conroy has
conceded only a very small fraction of the $50.9 million paid to Syntheo in
pre-payments had been recovered by the NBN Co.
Senator Conroy: “The taking back of the Northern Territory allows
them to continue to roll out and to overcome the challenges, which have been
significant, of some of our largest construction companies in the country.
Syntheo, for those who are not familiar with it, is a joint venture between
Service Stream and Lend Lease, two of our biggest construction companies, and
they have been having some difficulties. We are receiving back the mobilisation
payment in the Northern Territory. I think it is around $2½ million. We have
made it a condition that that money be returned when we took back that
project.”[32]
Given the disastrous economics of ongoing participation in
the NBN for several of the contractors, the risks they were being asked to
bear, and the increasingly fractious relationships between contractors and NBN
Co, the predictable result was a wave of departures of high level executives
close to the NBN project.
Silcar CEO Peter Lamell left the company in May 2013,[33] Service Stream
managing director Graeme Sumner left the company in April 2013,[34] and Service Stream
executive general manager Stephen Ellich left in May 2013.[35] As discussed in another
part of this report, there was a similarly high turnover of
construction-related executives at NBN Co.
Viewed in their totality, the NBN Co’s relationships with
its civil contractors have been a notable area of lack of success for the
organization. This has been a significant contributor to poor NBN outcomes.
Recommendation:
The NBN urgently seek expert advice on implementing an
appropriate system for benchmarking, learning from, refining, standardising and
continuously improving the work flows and work processes used in the rollout.
3.2 Handling of Asbestos Risk
At the time of writing this report, it appears that there
has been substantial mismanagement of asbestos risk in the NBN rollout.
Asbestos containing material (ACM) was extensively used in Telstra pits for
many years. As part of works being conducted to roll out fibre around the
country, significant work is occurring in large numbers of Telstra pits.
There have been numerous reported instances of ACM being
removed, and handled, as part of this work, without appropriate safety
protocols being followed. Concerns have been reported in relation to sites in
East Perth, Victoria Park and Canning Vale in Western Australia; [36] Penrith in New
South Wales;[37]
Mackay in central Queensland and Banyo in suburban Brisbane;[38] Launceston in Tasmania;[39] and Ballarat in
Victoria.[40]
The Minister for Employment and Workplace Relations, Hon
Bill Shorten MP, has informed Parliament that wrote to Telstra in 2009 raising
concerns about asbestos safety issues in Telstra’s network.[41] It is surprising therefore
that subsequent to that time management of the asbestos risk does not appear to
have been afforded sufficiently high priority, even though government was aware
of the contract entered into between Telstra and NBN Co in 2011 which required
Telstra to conduct very substantial work in its network to facilitate the NBN
rollout.
Coalition members and senators note that the Communications,
Electrical and Plumbing Union has expressed serious concern over this matter,
reportedly accusing Telstra and NBN Co of ‘systemic failures’ in safety
training for remediation work in pits and pipes.[42]
Coalition members and senators note with concern that
answers to Committee Members at the 19 April hearing suggested that NBN’s
senior management did not regard the asbestos issue as being particularly
significant.
Mr FLETCHER: I have one last question. NBN Co. put out
a tender in September, and one of the matters it provided for was toxic waste
and asbestos removal. Is that related to asbestos in Telstra pits? Who bears
the cost of that remediation if it turns out to be different to expectations?
Mr Quigley: I will have to take that one on notice as
well. Telstra are responsible for remediating their pits so they are fit for
use, so as part of that, if Telstra is doing the work, Telstra would be
responsible for that. If we were doing some work—and we obviously do some work
in ducts and pits—we would obviously be responsible for it. So I cannot answer
on this particular tender until I have checked on it.
Mr FLETCHER: Are you finding that asbestos is a big
issue across the board?
Mr Quigley: What is your view, Ralph? I would not say
it is a big issue.
Mr Steffens: No. It is present, as it would be
anywhere, in any geography. But it does not seem to be a huge problem at this
stage.[43]
Coalition members and senators note the position of the
Gillard Government, and of Telstra, that liability for these asbestos issues
rests with Telstra. We question how this can be so in light of section 19(1)
of the Work Health and Safety Act 2011 (Clth).
This section states that ‘A person conducting a business or
undertaking must ensure, so far as is reasonably practicable, the health and
safety of…(b) workers whose activities in carrying out work are influenced or
directed by the person, while the workers are at work in the business or
undertaking.’
This section imposes on NBN Co a duty to workers, including
workers employed by Telstra or by contractors to Telstra, if their work is
‘influenced or directed’ by NBN Co. In view of the fact that the very purpose
of the work is to allow the pits and ducts to be used as part of the national
fibre rollout being conducted by NBN Co, this test would appear to be
satisfied. Coalition members and senators are concerned about the potential
liability to which NBN Co may be exposed as a result of this provision.
Coalition members and Senators are concerned by:
n The risk to the
health and safety of workers employed by Telstra, NBN Co or their contractors,
on the NBN rollout and associated work in Telstra’s pits
n The risk to the
health and safety of residents and passers-by
n The legal liability to
which NBN Co may be exposed
n The potential delays
to the rollout, and likely additional harm to NBN Co’s financial position as a
result
n Evidence NBN Co
management may not have regarded the asbestos risk as a significant one.
Coalition Members and Senators note that a key difference
between a fibre to the node (FTTN) architecture, which will be the primary
approach used in brownfield areas for the NBN should the Coalition be returned
to government, and the fibre to the premises (FTTP) architecture being used
presently, is that FTTN involves much less extensive disturbance of the
existing network and its pits and ducts.
With FTTN, there is little or no change to the network on
the customer side of the node; the existing copper stays in place.
Accordingly, while there will continue to be asbestos risks which will need to
be managed, it is likely that under the Coalition’s approach the asbestos risk
will be significantly reduced because there will be much less need to disturb existing
pits.
The Coalition notes that advances in equipment used by the
NBN Co will also have the ability to significantly reduce the cost and health
risks associated with remediating existing infrastructure. For instance,
multiports that could fit in existing infrastructure could dramatically reduce
the number of pits that need be removed, reducing worker exposure to potential
asbestos containing material.[44]
Recommendations:
NBN Co and Telstra continue to work closely with their
contractors to ensure the latter are properly trained in the safety issues
surrounding asbestos and its safe handling.
3.3 Insufficient Skilled Labour
In addition to its many other problems the NBN project has
been beset by problems in recruiting adequately trained workers, which has led
to high fault rates and slow rollout periods.
Media reports revealed that all major contractors have had
problems meeting required run rates for fibre splices to meet rollout targets.
Poor quality of splicing in sites such as Crace in the ACT meant that
remediation work needed to be done on 15 per cent of cables laid by
contractors. [45]
In evidence to the NBN Joint Committee, NBN CO Chief
Operating Officer Ralph Steffens said that an inexperienced fibre splicer can
result in a fourfold decrease in performance:
Mr Steffens: Where you clearly see a correlation is in
the difference between experienced and unexperienced operators. The
unexperienced are driving a higher degree of rework. That is to be—
Senator LUDLAM: How much?
Mr Steffens: With a very experienced operator versus
an operator who has just come out of training school, there is easily a three-
or four-fold difference in performance.[46]
In documents released under FOI, the NBN Co revealed it has
initiated a $250,000 grant program to help up to 60 people train as fibre
splicers. CEPU industrial officer Valerie Butler said of the training program:
“It’s unfortunate that this wasn’t done two or
three years ago. They should have been ready to go by the time the build
ramped up and I don’t believe they would have experienced some of the problems.”[47]
However, it is still unclear as
to how many fibre splicers the NBN Co will need to train beyond the 60 already
anticipated to be added through the grants program. NBN Co COO Ralph Steffens
said: “The good news is that we do not need thousands or tens of thousands of
splicers across the network. We are talking about hundreds.”[48]
|
State
|
Req. Splices/Week
|
Act. Splices/Week
|
|
NSW/ACT
|
59,173
|
956
|
|
Victoria
|
33,128
|
2,160
|
|
Queensland
|
11,028
|
476
|
|
Tasmania
|
2,337
|
13
|
|
WA/SA/NT
|
7,160
|
24
|
NBN Co CEO Mike
Quigley also nominated fibre splicing as an area where 457 Visa workers may
need to be recruited: “I do know that there have been some specialised skills
that have come in from overseas. For example, ribbon splicing would be an area”[49]
NBN Co has stated that it intends to double its external
workforce (that is, the workforce it employs on the project via intermediary
contractors) from 7,500 to 15,000 in the next financial year, presenting it
with significant challenges in finding a corresponding volume of additional
fibre splicers[50].
One reason why NBN Co may be struggling to recruit workers
is that subcontractors are being paid up to 50 per cent less for skilled labour
than on equivalent projects.[51]
Recommendation:
The NBN incorporate a process of explicitly mapping
emergent technical needs to the skilled labour available in Australia and
developing a strategy to overcome any shortages before committing to future
investments or projects requiring those skills.
3.4 Aerial Rollout of Fibre
The NBN Co appears to be finding it impossible to meet its
targets for aerial network deployments, adding to potential schedule and cost blowouts.
According to media reports, in NSW and the ACT the NBN Co
2012-2015 Corporate Plan projects than on average 239 poles a week would be
made ready for aerial deployment this year, whereas actual aerial deployment is
zero. [52]
Similarly in Queensland, the projected rate was 226 poles per week made ready
for aerial deployment. Again, the actual rate is zero.
|
State
|
Planned Aerial/Week
|
Actual Aerial/Week
|
|
NSW/ACT
|
239
|
0
|
|
QLD
|
226
|
0
|
A source cited by the Australian Financial Review
states the costs of underground deployment may be as much as four times higher
than those of aerial deployment in areas without existing underground passive
infrastructure. Most industry estimates put the ratio at between three and
four. [53]
The NBN Co’s stated target for aerial deployment is 25 per
cent of the overall customer connection and local network.[54] The NBN Co 2011-13
Corporate Plan stated that if this ratio were lowered to 10 per cent of the
deployment, the total levered funding requirement “would increase by $1.8
billion.”[55]
Given the NBN’s failure to secure agreements with
electricity distribution utilities to use their poles and existing assets to
assist with aerial deployment, the Coalition believes there is a real risk that
the additional billion-dollar-plus expenses referred to in the McKinsey
sensitivity analysis may now be part of the central case scenario for the
current NBN.
Recommendation:
If the original proportion of aerial deployment is no
longer possible, adjust the Corporate Plan accordingly.
3.5 Interim Satellite Service Users Face Cap
It must be noted that customers with a satellite broadband
service, either through the Australian Broadband Guarantee or the NBN ISS, do
not have any other option for their broadband needs. Indeed, if a resident can
access reasonable quality broadband, he/she is not eligible for the ISS.
As noted in the majority report, the 48,000 customer cap on
the Interim Satellite Service is likely to be reached in 2014, at least twelve
months, and possibly more than eighteen months, before the NBN Long Term
Satellite Service is operational.
Once the Long Term Satellite Service is operational, it will
take at least twelve months to migrate customers from the ISS to the Long Term
Satellite Service, and presumably substantially longer to connect every
customer requiring a satellite broadband service.
Mr McLaren gave the following evidence at the JCNBN public
hearing in Sydney on 19 April 2013:
Mr. McLaren “We will still have the interim satellite
in place, and there will be a migration over a period of time. It looks like it
will take probably 12 to 18 months to do that migration. It is not something we
can organise a workforce to do within a week or two and switch things over. It
needs a customer visit. It needs to be supported through a program right across
regional and rural Australia.”
Based on this information, it is reasonable to conclude that
customers who are excluded from accessing the ISS because of the 48,000
customer cap may be waiting more than three years for access to any form of
broadband service.
There is now a substantial workforce of trained installers
involved in the rollout of the NBN Interim Satellite Service. However,
recruiting and training this workforce took some time, with the ISS operating
on a trial basis with a monthly cap of 300 installations for several months
before transitioning to a more intensive rollout.[56]
The Australian newspaper reported on 29 October 2012
that ISS equipment installer, Skybridge, needed to double its workforce to cope
with the task of installing ISS customer equipment:
“Skybridge, Australia's largest satellite broadband
deployment service, responsible for providing the installation for NBN
first-release satellite services, has doubled its workforce in the last nine
months. The company now employs 100 people and works with more than 400
contractors around the country.”[57]
If there is a substantial gap between the closure to new
customers of the ISS and the launch of the long-term satellite service, the
trained workforce of installers will be lost, and the lessons learned during
the rollout of the ISS will have to be relearned. This will only further delay
the provision of broadband services to consumers in rural and remote Australia
who cannot afford to be without decent broadband.
Mr McLaren’s evidence to the JCNBN public hearing on 19
April 2013 briefly touches on the challenges of recruiting and training the
workforce for the long term satellite service rollout:
“It looks like it will take probably 12 to 18 months to do
that migration. It is not something we can organise a workforce to do within a
week or two and switch things over.
Senator Conroy gave evidence to a Senate Committee that the
cost of increasing the ISS cap would be prohibitive:
“If we were to buy all the remaining capacity on IPSTAR and
other satellites we could potentially increase our user numbers to about
75,000. To add about 7,000 new services the cost would be roughly $86 million,
to add 17,000 new services the cost is estimated at $143 million and to
buy all 27,000 of these services the cost is estimated at $206 million.”[58]
Coalition members of the Committee have spoken at length
with a range of satellite industry stakeholders about the Minister’s claims,
and while there is no question about the availability of sufficient capacity to
expand the cap, every stakeholder was of the view each of the Minister’s
pricing claims exceeded all reasonable pricing expectations.
Recommendation:
NBN Co re-examine all available options for increasing
the ISS cap.
4 NBN CO ORGANIZATIONAL ISSUES
4.1 Unstable Governance
& Questions Over Board’s Confidence in CEO
On March 21, Siobhan McKenna was appointed Chair of the NBN
Co Board, replacing Harrison Young.
On that day, the company issued a significant write-down of
its rollout forecasts – which by chance happened to become public via a press
conference held during that week’s Labor leadership crisis.
In subsequent media interviews, Ms McKenna said the reduced
forecasts caused her to ‘take a much tougher approach to management’ and
highlighted what she felt was a lack of accountability among senior management.
She said: "The role of a board is to ensure management
takes appropriate accountability for whatever the nature of the business is.
Since I have become chairman, I have reinforced with management their
accountability to the board.”[59]
Ms McKenna claimed a prerequisite for her acceptance of the
role of Chair was that Senator Conroy no longer be allowed to communicate
directly with NBN Co chief executive Mike Quigley.
Senator Stephen Conroy sought to downplay the story,
stating: “I have regular contact with Mike
Quigley, as needed, and I speak with many other members of staff.”[60]
Ms McKenna has apparently established a regular weekly
meeting with Mr Quigley, significantly increasing the CEO’s level of reporting
and accountability to the board. She has also engaged in regular meetings with
NBN Co executives both one and two layers below Mr Quigley, and met with
numerous NBN Co suppliers, contractors, partners and customers.
According to both media reports and private information
received from NBN Co sources, during the second and third weeks of May Ms
McKenna approached other members of the NBN Co Board to test their support for
terminating CEO Mike Quigley.[61]
According to most versions of events, she was successful in obtaining the
support of a majority of the Board for this step, but was not able to secure
the agreement of Senator Conroy.
At an Estimates hearing in May, Senator Stephen Conroy
refused to permit CEO Mike Quigley to answer straightforward questions about
his accountability to the board, and whether he still enjoys the confidence of
the board:
Senator BIRMINGHAM: How has the board, since Ms
McKenna became chair, reinforced to management their accountability to the
board? Have there been any particular changes in the way management is expected
to present their accountability to the board under Ms McKenna?
Senator Conroy: I am happy to take on notice—
Senator BIRMINGHAM: Why won't you let Mr Quigley
actually answer that?
Senator Conroy: I am sorry. If you want to ask about
the board, you are asking me.
Senator BIRMINGHAM: No, this is a management question,
Minister.
Senator Conroy: It is not.
Senator BIRMINGHAM: It is a management question.
Senator Conroy: I have said I am happy to take that on
notice.
Senator BIRMINGHAM: Why won't you let Mr Quigley speak
for himself?
Senator Conroy: You are asking board related
questions.[62]
It is no doubt in Labor’s political interests for Senator
Conroy to prevent Mr Quigley, who has day to day control of the largest
taxpayer-funded project in Australia’s history, from providing some
transparency about the current state of relations between himself and the
Board.
The Coalition Members and Senators on the Joint Committee
contend that this is not, however, in the national interest. Nor, more
generally, is it in the national interest for the Shareholder Ministers, Board
or senior executives of a public corporation owned by Australian taxpayers and
charged with spending $50 billion or more of Australian taxpayers’ funds to
misrepresent the way in which it is being managed. There is an urgent need for
greater transparency about these issues at NBN Co.
Recommendation:
The NBN’s Shareholder Ministers provide a public
indication of whether Mr Quigley, Ms McKenaa or both will stay on at NBN Co if
Labor is re-elected.
4.2 Soaring Headcount & Executive Turnover
Coalition Members on the Committee note that NBN staff
numbers and costs continue to rise strongly, even though the rollout is running
well behind plan. The rapid turnover of personnel at the Board and senior
executive level also continues to be a matter of concern.
According to answers to questions put on notice at a recent
Senate Estimates Committee hearing, at the end of February NBN Co had 2477
employees, of which 2352 were permanent staff.[63]
This represents an increase of nearly 50 per cent on staff
numbers in June 2012, when they stood at 1674 (of whom 1620 were permanent
staff).[64]
Coalition Members and Senators note that employee related
costs are projected to be $3.8 billion of the total estimated operating
expenditure to FY2021 of $26.4 billion.[65]
Year-to-date staff costs as of May 30 were $295 million.[66]
This is a significant driver of NBN Co’s expenses, and it is
vital that it be managed as cost-effectively as possible. We are concerned
that NBN Co’s staff management practices are not as cost-effective as those of
comparable private sector companies.
Evidence includes headcount continuing to grow rapidly; NBN
Co offering salaries which are very high compared to norms in the Australian
telecommunications industry; and the high rate of churn of staff.
Coalition Members and Senators are equally concerned at the
rate of turnover among the directors and senior executives of NBN Co:
n Since October 2009,
14 senior executives and 55 executive-level employees have left the company,
according to a response to an Estimates question on notice.[67]
n Of nine directors
appointed to the NBN Co Board in 2009, five have stepped down: Mr. Doug
Campbell, Mr. Clem Dougherty, Mr. Peter Hay, Mr. Gene Tilbrook and Mr. Harrison
Young.
n Of the nine
executives listed in NBN Co’s Annual Report as Key Management Personnel in June
2011 six have left: Mr. Patrick Flanigan, Mr. Jean-Pascal Beaufret;
Ms. Christy Boyce; Mr. Steve Christian; Mr. Jim Hassell; Mr. Tim Smeallie.[68]
This appears to be an unusually high level of turnover in
the executive ranks, and particularly at the very top given NBN Co was
originally run by a team handpicked by a CEO given a free hand by his Board and
a virtually unlimited budget by his Shareholder Ministers.
In recent months NBN Co has also lost a startling number of
its most senior construction and project management staff given this
constitutes its core activity in the near-term, including:
n Head of Construction,
Dan Fleming.[69]
n Head of Fixed
Wireless Rollout, Joe Prelc.[70]
n General Manager of
Marketing, John Casey.[71]
n Head of Quality &
Efficiency Paul Takac.[72]
n Executive General
Manager of Construction, Health & Safety, Paul Donker.
n Executive General
Manager of Construction Program Management, Stephen Butler.
Coalition Members and Senators have sought further
information about the level of redundancy payments to departing senior
executives and executive level employees. Disappointingly, NBN Co has refused
to provide this information to the Parliament and the Australian taxpayers who
bear financial responsibility for the project.[73]
Recommendation:
NBN Co commit to reducing its indirect opex overheads
by 20 per cent over the next two years.
4.3 NBN
& DBCDE Spending on Ads Without Regard to Effectiveness
In May 2013 estimates, the DBCDE claimed its overall
marketing spend for the NBN for 2012-13 would be $24.9 million.[74]
This expenditure is in addition to $29 million previously
spent on NBN related advertising.
The Department remains unable to identify the benefits of
this advertising campaign and the metrics against which outcomes are measured.
When questioned on the findings of an interim report into the effectiveness of
the advertising campaign Minister Conroy indicated that document is protected
by cabinet confidence and therefore he nor the department are able to discuss
its contents:
Senator BIRMINGHAM: And what did that evaluation find?
Senator Conroy: This material goes to cabinet.
Senator BIRMINGHAM: The evaluation report of the first
stage of the NBN campaign is a cabinet document?
Mr Robinson: It is.
Senator BIRMINGHAM: It is amazing the things you will
take to cabinet to claim confidentiality over them.[75]
NBN expects to spend an additional $11.9 million on
‘Communication and marketing campaigns’ in 2012-13 which comes on top of $11.226 million in 2011-12.[76] [77]
The Coalition has identified a number of concerns about the
conduct and content of NBN advertising undertaken to date, including:
Promotional material was published in regions not included
in stage one of the rollout, creating confusion over when the NBN will be
available.[78]
Much of the material created a false impression that many
services and applications that are of public benefit can only be delivered on a
fibre-to-the-premise network.[79]
There was insufficient focus on pressing public interest
issues, such as the decommissioning of the copper network, risks posed by
asbestos and the lack of RSPs offering services over the NBN’s Uni-V ports.
Recommendations:
The NBN Co and the DBCDE need to measure the
effectiveness of their overall advertising and marketing spending, to justify
any ongoing increases.
The NBN Co and the DBCDE immediately release any
reports on the effectiveness of NBN related advertising campaigns.
4.4 Indirect Operating
Expenses
NBN Co is expecting $18 million in revenue
from selling telecommunications services for the 2012-13 financial year. Until
now it has earned much more from bank interest than broadband.
Yet indirecting operating expenses (opex)
have increased dramatically from original forecasts – they are estimated to be
twice as high over the decade-long network build than in the original NBN Co
2011-2013 Corporate Plan released in late 2010.
Similarly the NBN’s indirect operating
expenses over the three years to June 2013 – money spent on staff, travel and
other expenses not directly related to building or operating the network – are
set to be twice as high as estimated three years ago in the original Corporate
Plan.
Indirect opex over the three years will be
$1.48 billion, compared to the original estimate of $771 million and estimated
revenues over the same period of just $20 million.
Individual
expense items also appear excessive compared to the meager revenue NBN Co is
pulling in. Some notable indirect operating expense items in the first seven
months of fiscal 2012-13 include:
|
Expense Category
|
Year-to-Date (Jan 2013)
|
|
Consultancies
|
$22 million
|
|
Legal Costs
|
$11 million
|
|
Education Expenses
|
$3 million
|
|
Taxis
|
$1 million
|
|
Electricity
|
$7 million
|
|
Rent
|
$14 million
|
Total rent for
the NBN Co at its various locations now exceeds $14 million annually.
Rent for each location is outlined below:
|
Address
|
Rent/Year
|
|
15 National Cct Barton
|
104,244
|
|
88 Walker St Nth Sydney
|
495,992
|
|
100 Arthur St North Sydney
|
6,142,730
|
|
360 Elizabeth St Melbourne
|
4,334,322
|
|
39 Murray St, Hobart
|
51,188
|
|
535 Bourke St Melbourne
|
1,060,008
|
|
213 Miller St Nth Sydney
|
697,453
|
|
45 Cameron St Launceston
|
54,659
|
|
77 Pacific Hwy Sydney
|
281,994
|
|
54 Victoria St Hobart
|
72,450
|
|
50 Miller St Nth Sydney
|
928,981
|
|
Total
|
$14.244 m
|
Recommendation:
NBN Co commit to reducing its indirect opex overheads
by 20 per cent over the next two years.
Hon
Malcolm Turnbull MP
Member
for Wentworth
on
behalf of the Coalition Members of the Joint Committee
on the National Broadband Network