Chapter 1
Introduction
Referral of the inquiry
1.1
On 25 June 2008, the Senate established the Select Committee on the
National Broadband Network (the committee) to inquire into and report by 30 March 2009 on:
-
the Government's proposal to partner with the private sector to upgrade
parts of the existing network to fibre to provide minimum broadband speeds of
12 megabits per second to 98 per cent of Australians on an open access basis;
and
-
the implications of the proposed National Broadband Network (NBN) for
consumers in terms of:
-
service availability, choice and costs;
-
competition in telecommunications and broadband services, and
-
likely consequences for national productivity, investment, economic
growth, cost of living and social capital
-
and other related matters.
Conduct of the inquiry to date
1.2
The committee advertised the inquiry in The Australian and
invited written submission by 15 August 2008; details of the inquiry were placed
on the committee's website.
1.3
The full terms of reference for this inquiry are quite extensive and can
be found at appendix 1. The Senate placed specific requirements on the conduct
of the inquiry, including that the committee should 'request formal submissions
that respond directly to the terms of reference' from a number of key stakeholder
organisations and Commonwealth departments.
1.4
Letters were written to the named departments and organisations; however
all responded by declining the invitation to submit.
1.5
As the committee had not received any submissions by the initial closure
date, a number of additional letters were written to relevant organisations
inviting submissions. The committee agreed to extend the submission closing
date until 12 September 2008.
1.6
As a consequence of the additional letters, the committee has now
received 32 written submissions from individuals, organisations and government
departments; a list of submissions can be found at appendix 3.
1.7
The committee also decided to pose a number of 'Questions on Notice' to
those departments and organisations who had previously declined to submit.
Questions were varied to ensure they were pertinent to each organisation and
that the response was within their field of expertise without impinging on
perceived issues of probity in relation to the Request for Proposals (RFP)
process.
Public hearings
1.8
An initial private briefing was held to provide committee members with
detailed explanations of contextual background leading up to the Request for
Proposals, outlining the various technologies and defining terminology
involved.
1.9
To date a number of public hearings have been held in Sydney, Canberra, Melbourne,
Perth and Brisbane. Details of these hearings, including the list of
witnesses who gave evidence, are shown at appendix 4.
Reporting
1.10
The closing date for the Request for Proposals to build the National
Broadband Network was 26 November 2008. The Department of Broadband,
Communications and the Digital Economy (the department) has stated that it will
allow six weeks from that date for the proposals to be assessed by the Panel of
Experts (see page 6), followed by two weeks for the Panel to assess the report
on proposals prepared by the Australian Competition and Consumer Commission
(ACCC).
1.11
Although the reporting date for this inquiry is not until 30 March 2009, the committee is keen to ensure the inquiry findings made to date are made
available to the Senate, the department, and the public in general prior to the
announcement of a successful proponent.
1.12
Consequently the committee is providing this Interim Report, which
includes evidence from all submissions and incorporates evidence from its first
seven public hearings. The committee's final report will investigate all terms
of reference and make final recommendations for tabling in the Senate on 30 March 2009.
Background to the inquiry
1.13
On 11 April 2008, the Minister for Broadband, Communications and the
Digital Economy, Senator the Hon. Stephen Conroy, announced the release of a
Request for Proposals to roll out and operate a new, open access, high-speed,
fibre-based broadband network. The announcement detailed the provision of up
to $4.7 billion for the network build, and consideration of any regulatory
changes necessary to facilitate the development, over five years, of a National
Broadband Network (NBN).
1.14
The NBN is to be a critical element of the Australian Government’s
national infrastructure agenda, providing the primary platform for delivering
high-speed broadband services, but also possibly the platform for basic voice
services and future innovative services in the coming decades.
1.15
Just prior to the announcement of the RFP, the minister cancelled the OPEL[1]
contract that had been conditionally signed under the previous Coalition Government
to deploy a broadband solution for rural and regional Australia.
1.16
This inquiry was subsequently established to investigate the new
proposal by the Labor Government, with notable reference to inquiring into
whether the new proposal would deliver an improved outcome to that provided for
under the OPEL contract, which was targeted for completion by mid-2009. This
inquiry was called also in acknowledgement that, even if the NBN was to provide
an improved solution, deployment may well not be completed until 2013, or even
later.
The Coalition Government's OPEL solution
1.17
In June 2006, the then Department of Communications, Information Technology
and the Arts (DCITA) put out an Expression of Interest (EOI) seeking industry
views on a proposal for an innovative approach to achieving the Coalition Government’s
broadband objectives.
1.18
This was in recognition that, despite some success achieved through an
incentive-based scheme that enabled extension to broadband service coverage,
some areas of underservicing still remained, and that perhaps the approach
under the Coalition Government's Broadband Connect Infrastructure Program was
not the most efficient and effective way to enable metro-comparable broadband
in these areas.
1.19
The EOI stated that the primary objective of any future competitive
grants program would be to achieve sustainable, equitable access to broadband
in regional areas by supporting the extension of metro-comparable broadband
services into currently underserviced areas, without the need for ongoing government
subsidies.
1.20
This objective is strikingly similar to that which is proposed under the
Labor Government's current Request for Proposals. However, the major area of
difference is in the manner funding is to be provided. The Coalition Government's
approach was to provide a subsidy that would have been specifically targeted to
underserved areas. The very different approach taken by the Labor Government
is to provide Commonwealth funding of up to $4.7 billion, preferrably on
an equity basis, but with no guarantee that the current areas of disadvantage
would be any better off at the end of the five year project.
1.21
By June 2007, the previous Coalition Government had undertaken a program
called Australia Connected, a comprehensive broadband solution with five
major components:
-
a new national high speed wholesale network, delivering a mix of fibre
optic, ADSL2+ and wireless broadband platforms to rural and regional areas;
-
a new commercial fibre optic network, facilitating a fibre network build
in cities and larger regional centres;
-
the Australian Broadband Guarantee, a safety net entitling Australians
living in the most remote or difficult locations to a broadband subsidy of
$2750 per household;
-
BroadbandNow, a one-stop help centre for consumers to determine
the technology options that would best suit their needs; and
-
preservation of the $2 billion Communications Fund to ensure those funds
are protected in perpetuity by legislation for the benefit of regional and
remote Australians and provide an income stream for future upgrades.[2]
1.22
The previous government conducted a competitive bidding process, and
committed to making any legislative changes required to enable the broadband
network to be built without the need for additional government funding. Two
companies submitted commercial proposals, with OPEL Networks Pty Ltd announced
in June 2007 as the successful bidder.
1.23
The OPEL network was a joint venture partnership between Elders and
Optus, offering a range of services including end-to-end broadband services for
resellers, improved backhaul access across its network with reduced pricing,
assistance to regional Internet Service Providers (ISPs) to link into their
network, and a regional presence through 400 Elders’ shopfronts across
Australia.
1.24
OPEL was to deliver access to ADSL2+[3]
broadband for 1.5 million premises in regional areas by enabling an additional
312 exchanges. Once rolled out, premises without access to OPEL’s network
would be eligible to receive a subsidised service provided under the Australian
Broadband Guarantee (ABG).
1.25
In May 2007 FANOC, (a company created by the G9[4])
lodged with the ACCC a Special Access Undertaking (SAU) to provide third party
access to a bitstream access service on a proposed ADSL2+ fibre-to-the-node
(FTTN) in the five mainland capital cities.
1.26
In a draft decision handed down in December 2007, the ACCC rejected the
SAU, noting that FANOC could withdraw and refine their proposal for future
consideration, and inviting industry comment on their decision.
1.27
Telstra appears to have been the only industry respondent noted on the department's
website. Interestingly, Telstra supported the ACCC’s decision. However,
Telstra was simultaneously very critical of the assessment guidelines on which
the ACCC's decision was based, outlining the planning, deployment and
regulation of the Next Generation broadband network for Australia.
1.28
Perhaps not surprisingly, Telstra was particularly critical of the
ACCC’s preference for the network to be built by a non-vertically integrated
investor that had no role whatsoever in downstream markets.
1.29
On 2 April 2008, the Minister for Broadband, Communications and the
Digital Economy announced that the OPEL Networks broadband contract had been
cancelled. A precondition of the contract was that OPEL undertake testing and
mapping to substantiate the service coverage set out in its proposal. In
particular, OPEL was required to confirm its proposal would provide coverage
reasonably equivalent to 90 per cent of underserviced premises identified
by the department. OPEL’s testing had been verified by Australian
Communications and Media Authority and Enex TestLab. However, when the department
conducted its own assessment, they concluded that the required 90 per cent
benchmark would not be achieved by the OPEL proposal, a claim that was strongly
refuted by the OPEL consortium.
1.30
In a media release on 2 April 2008, the minister said that:
DBCDE performed an analysis of the detailed testing and mapping
undertaken by OPEL, and determined that OPEL network would only cover 72 per
cent of identified under-serviced premises. ... On the basis of that assessment
the Government determined that OPEL’s Implementation Plan did not satisfy the
condition precedent of the funding arrangement, and as a result the contract
has been terminated.[5]
Request for Proposals
1.31
The termination of the OPEL contract was closely followed by the minister’s
announcement on 11 April 2008 of the Request for Proposals for the
National Broadband Network. The announcement specified that the NBN would need
to:
-
deliver minimum download speeds of 12 megabits per second to 98
per cent of Australian homes and businesses;
-
ensure the network is rolled out and made operational
progressively over five years using fibre-to-the-node (FTTN) or
fibre-to-the-premises (FTTP) technology;
-
support high quality data, voice and video services;
-
earn the Commonwealth a return on its investment;
-
facilitate competition in the telecommunications sector through
open access arrangements that allow all service providers access to the network
on equivalent terms; and
-
enable uniform and affordable retail prices to consumers, no
matter where they live.[6]
1.32
The Commonwealth’s objectives for the NBN project also include that it
will be consistent with Australia’s international obligations and that it
facilitates opportunities for Australian and New Zealand small and medium
enterprises (SMEs) to provide goods and services to the project.
1.33
In addition, all proposals must be compatible with the government’s $100 million
Fibre Connections to Schools initiative. The closing date for proposals
was initially 25 July 2008, but was extended to midday on 26 November 2008.
Assessment process
1.34
Proposals will be assessed through a process which the government has
stated is to be competitive, transparent and accountable. A Panel of Experts
(the Panel) will assess the proposals and provide their recommendation to the government
so that the successful proponent can be announced and the new network build can
commence. The Panel members are:
-
Ms Patricia Scott (Chair): Secretary, Department of Broadband,
Communications and the Digital Economy (DBCDE);
-
Dr Ken Henry AC: Secretary Department of Treasury;
-
John Wylie: CEO, Lazard Carnegie Wylie;
-
Laureate Professor Rod Tucker: University of Melbourne;
-
Professor Emeritus of Communications, Reg Coutts: University of Adelaide;
-
Mr Tony Shaw: former Australian Communications Authority Chairman;
and
-
Tony Mitchell: Allphones Chairman.
Role of the Australian Competition
and Consumer Commission
1.35
The RFP document outlines the role of the Australian Competition and
Consumer Commission (ACCC); the ACCC is to provide the Panel with ongoing
advice on issues including:
...wholesale access services and prices, access arrangements,
proposed legislative or regulatory changes and the likely impact of Proposals
on pricing, competition and the long-term interests of end-users in the
communications sector.[7]
1.36
The Panel will provide the ACCC with the Proposals 'as soon as is
practicable'[8]
to facilitate formulating their advice and the written report. The ACCC's
report is to be lodged with the Panel two weeks before the Panel is due to
complete its assessment of proposals – i.e. within the eight weeks following
the closure date for proposals.
1.37
The Panel will also consider advice provided by a range of Commonwealth
agencies and specialist advisers.
Evaluation criteria
1.38
Detail of the evaluation process is provided in the RFP document, with
six listed evaluation criteria. The Panel will evaluate each proposal against
these criteria, and then make a comparative assessment of all proposals as to
which proposal(s) offer the best overall value for money to the Commonwealth.
1.39
The evaluation criteria against which proposals will be assessed are:
-
the extent to which the Proposal meets the Commonwealth’s objectives for
the NBN project;
-
the capacity for the Proponent to roll-out, maintain, upgrade and operate
the network;
-
the nature, scope and impact of any legislative and/or regulatory
changes that are necessary to facilitate the Proposal;
-
the cost to the Commonwealth of the Proposal;
-
the acceptability to the Commonwealth of the contract terms and
conditions proposed by the Proponent and the extent to which the Proposal
departs from the Commonwealth’s notified commercial terms (if any); and
-
the extent of the Proponent’s compliance with the RFP.[9]
1.40
The government has stated that, following the RFP closing date on 26 November 2008, the Panel will have eight weeks in which to assess the proposals
and provide a recommendation to the minister.
Separate but parallel submission processes
1.41
As a separate process, but running in parallel with the RFP, the government
invited industry and public interest groups to provide submissions on the
regulatory issues, including consumer safeguards, relevant to the outcome of
the NBN process. Submissions to this process closed on 25 June 2008. Proponents will have access to these submissions, so that they can be taken
into consideration when drafting their RFP.
1.42
Proponents, industry, public interest groups and other stakeholders have
also been invited by the government, again in a separate process running in
parallel with the RFP, to make submissions on policy and funding initiatives to
provide affordable access to broadband services to remote areas that may be
outside the NBN coverage. This could include strategies to enhance the ABG
program, guidelines for which were released on 1 July 2008. The government has also committed $270.7 million for the ABG for the next four financial years.
Submissions to provide broadband services to the areas outside the NBN coverage
closed on 30 June 2008, and have also been provided on the department's website
for access by intending proponents.
Structure of this report
1.43
The terms of reference for this inquiry are very broad and as such this
Interim Report will not attempt to cover the terms in their entirety. However,
a number of common themes are emerging in the written submissions and have been
supported in the evidence provided at the public hearings held to date.
Concerns raised revolve around the following issues:
-
The lack of clarity and/or definitions within the Request for
Proposals document of terms that carry critical importance for potential
proponents;
-
The time frame allocated by the government for the evaluation and
assessment of proposals, including possible changes to the current regulatory
regime that would be a necessary component of their proposal;
-
The basis for allocation of the government's funding, including
possible impacts from the current global financial crisis on external funding
provision;
-
The high likelihood that the National Broadband Network will be a
monopoly, and the consequential impact that may have on competition and
innovation within the industry;
-
The basis for pricing access to the network;
-
The consequential preference for some form of separation between
the owner/operator of the network and any downstream retail business units;
-
The opportunity to implement major regulatory reforms for the
industry, including a strengthening of the powers of enforcement for the
Australian Competition and Consumers Commission; and
-
The nature of the roll-out including principles for a transition
plan for current services and carriers.
1.44
Chapter 2 provides some contextual background to the RFP, commenting on
the framework and on the overall conduct of the RFP process. It will also
probe the RFP terminology and how differing interpretations have been the
source of confusion and uncertainty for proponents, the industry and the
general public alike. Chapter 3 explores the issues surrounding the current
regulatory regime, discussing the implications for the NBN should it be a
monopolised entity, and regulatory reforms that will promote innovation and
competition within the telecommunications industry. Chapter 4 will examine
suggestions for the nature of the rollout of the NBN and what should be
essential components of any transition or migration schedule.
1.45
In this Interim Report, all references to Hansard transcripts relate to
the Proof Hansard.
1.46
Consideration of the full terms of reference will be undertaken within
the final report, due to be tabled in the Senate on 30 March 2009.
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