Paul Fletcher MP

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Tech Leaders’ Forum Keynote Speech

Other Speeches Sunday, 16 February 2014

I am very pleased to join you at the 2014 Tech Leaders’ Forum. 

Two years ago I had the pleasure of giving the opening speech at this same conference - which then rejoiced under the name ‘Kick Start’. 

I argued that there were some well-established principles for good public policy in communications and IT; but the Rudd Gillard government – at that point it hadn’t reached its final mature magnificence and become the Rudd Gillard Rudd government – was violating most of those principles, particularly its approach to the NBN.

I am back to have another go today – and this time my theme is what the Abbott government is doing to get ICT policy back on track.

I want to speak first about our starting point, inheriting an NBN rollout challenged by several strategic errors made by the previous government.  Next, I want to talk about some of the troubling disparities we discovered, upon coming to government, between what was being claimed about NBN Co’s rollout – and the reality.

But of course we are in control now, so I want to next discuss the steps we are taking to get the rollout back on track – with a robust plan which NBN Co board and management develop and are accountable for.

I’d then like to touch on a specific area of concern to the Coalition – regional and remote communications – before concluding with a few thoughts about the broader issue of policy settings to stimulate Australia’s participation in the digital economy. 

Labor’s Strategic Errors with the NBN

Let me start, then, by arguing that the previous government made several strategic errors in its approach to the NBN.

Never clearly identified the problem

The first error was that Labor never clearly identified the problem that NBN was trying to solve.

If you judged it on the basis of the media releases Stephen Conroy put out while Shadow Minister for Communications, the objective was to improve Australia’s ranking in the OECD broadband takeup figures.

In 2005, Conroy claimed that Australia’s ranking of 21st was an “appalling result”[1] and in 2006 he said our ranking of 17th out of 30 OECD countries was indicative of the Howard Government’s “complete lack of broadband infrastructure leadership.”[2]

On the most recent figures, showing broadband penetration as at 30 June 2013, Australia is ranked 18th,[3] so Conroy’s plan didn’t work very well.

If the objective was to rise up the world rankings, Conroy should have followed the British strategy. Between 2008 and 2012, while the NBN in Australia managed to pass about 300,000 premises, British Telecom upgraded 19 million homes with its fibre to the node rollout.  The UK is now ranked eighth highest in the OECD broadband penetration statistics, up from twelfth in 2007.[4]

Labor did not explain whether the objective was to roll out as quickly as possible; to get broadband to underserved people as quickly as possible; to drive the highest possible take up – or some other objective.  There was a similar lack of clarity on the benefits the network was expected to deliver. 

In 2011, I participated in the House of Representatives Infrastructure and Communications Committee inquiry into the Role and Potential of the NBN. I was astounded by the inadequate explanations delivered from a range of government departments. They could not tell us what applications required speeds of 100 Mbps – let alone a gigabit per second; nor could they tell us about how they planned to use the network to deliver new services.

The Coalition has consistently made the point that Labor took the decision to build the NBN without first conducting a cost benefit study. If such a study had been commissioned, it would have forced some clarity on where the benefits of the NBN were expected to come from.

Were they to come from more people being connected? Were they to come from people being connected at a lower price? Were they to come from people getting a higher speed – and if so what could they do at that higher speed which they cannot do today?

A risky execution strategy

The next big strategic error was the previous government’s decision to set up a brand new company, from scratch, to build three complex new networks – wireless, satellite and fibre.

On any view, as an execution strategy, this could only be described as ‘spectacularly risky’.

Compare this to the very different approach in New Zealand.  The government there divided the country into multiple regions, and contracted with existing, experienced companies to build the network.  Chorus, the former network business spun out from Telecom New Zealand, is building the network across 70 per cent of the country. 

The build is proceeding well. On latest figures, the rollout is 27 per cent completed, with 363,000 end users able to connect, and on track for completion by its scheduled end date of 2019.[5]

Here in Australia, there is no doubt the implementation strategy the previous government chose was a poor one; we now have the task of turning it into something more sensible. 

Glib Attempt to Solve the Rural Communications Problem

I want to turn to a third strategic problem with the NBN.

According to Kevin Rudd and Stephen Conroy, the NBN was going to solve forever the complex challenges of rural and remote communications.

This glib assumption skated over the true complexity of the issues. 

I don’t want to be misunderstood here. Addressing regional and remote communications needs must be a priority, and always will be under a Coalition government; indeed I will speak later about what we are doing in this area.

But the mistake which Labor made was to try to solve the problem of regional and remote communications by building in cross subsidies between metropolitan users on the one hand, and regional and remote users on the other hand.  This entrenches unnecessarily high costs for the majority of Australians who live in the cities, and it also disguises the cost of serving regional and remote areas.

It also piles complication on complication as you seek to defend the metropolitan revenues against competitive entry from operators who can provide services more cheaply.

The Coalition took a different approach to the 2013 election.  First, we provided for an explicit, on-budget subsidy for regional and remote communications – in our commitment to spend $100 million on subsidising the rollout of mobile phone base stations in regional and remote Australia. 

Secondly, we said that NBN’s wholesale prices must be a ceiling around Australia – but if the NBN Co, or another network operator, can economically set lower prices in metropolitan Australia, there should be no legal barrier to doing so.

What We’ve Discovered

I have touched on some key strategic errors which the previous government made with its broadband strategy.  Most of these we knew about when in Opposition; but I want to highlight several troubling aspects of what we have discovered since coming to government. 

Systematically oversold what had actually been achieved

The first has been a systematic overselling by the previous government of what had actually been achieved.  Let me mention a few examples.

When we came in, we had a look at the in areas where, supposedly, construction had commenced.  What we discovered was that NBN Co included locations in this list, and showed them on its website, if all they had done was started initial design work. 

In fact around 500,000 premises were shown as being in areas where construction had commenced, when, in fact, nothing had happened on the ground at all.

In the same vein, Labor went through the 2013 election period giving the impression that NBN’s previously stated target, of 1.13 million premises to passed by fibre in brownfield areas by 30 June 2014, was still valid.  Yet NBN Co had notified the Minister that it had reduced this target to 600,000.  

The interim satellite service is another good example.  When NBN Co released its 30 June 2013 rollout figures, its released contained a table stating that the ‘homes passed’ by the satellite was 165,000 as at 30 June 2012 and 250,000 as at 30 June 2013.[6]

In fact, both of these numbers were grossly misleading.  The total capacity purchased by NBN Co on the transponders of Optus and IPStar for the interim satellite service was only enough for 48,000 customers.  This was so when NBN Co was claiming it could cover 165,000 premises; and there was no extra capacity purchased when the number of eligible premises was expanded to 250,000.

Cost much more than claimed

The next thing we discovered, through the detailed work of the strategic review, was that the true cost of building the NBN according to the original plan was going to be much more than Labor claimed – despite the many assurances that the stated $37.4 billion would be sufficient.

In a parliamentary committee hearing in April 2013 hearing, for example, NBN Co CEO Mike Quigley was asked:“to be clear: the NBN corporate plan is reliable on the capital cost of $37.4 billion?”.[7]He responded: “Yes, that is our best estimate, underpinned now, I think, by a substantial amount of data.”[8]

Subsequent to that hearing, NBN lodged written advice with the Committee, stating: “NBN Co’s total estimated capital costs to FY2021 remains within the $37.4 billion forecast in the 2012-15 Corporate Plan, including a contingency of 10%”.[9]

The truth was quite different, as the Strategic Review found.  The capex to complete the rollout would be $55.9 billion – nearly twenty billion dollars more than NBN Co had previously said would be required.[10]

Basic failure to manage key issues eg bandwidth on interim satellite

Let me mention one particular case study of poor management by NBN Co - the interim satellite service.  I have spoken of the misleading claims about how many people could get this service.

But equally troubling is that, for those who do receive the service, there has been a serious degradation in quality.  How did this happen?

NBN Co purchased capacity from Optus and IPStar to provide the service.  Acquiring capacity from another satellite operator is perfectly sensible. 

But what went wrong was a mismatch between the amount of capacity purchased, and what was provided to end users.

NBN Co failed to control the amount of bandwidth sold to end users.  The network was configured on the assumption that each user would download 9 gigabytes per month on average.  But the company failed to secure contractual arrangements with its resellers to enforce such a limit.  Some resellers have sold plans with download limits as high as 20 gigabytes per month. 

Under the previous government programme in this area, the Howard Government’s Australian Broadband Guarantee, service providers were required to ensure that end users got 65 per cent of their peak speed 80 per cent of the time.  But no such requirement was imposed on resellers by NBN Co with its new programme. 

So the former government spent $350 million on this service, at a cost of more than $7,000 per user, and what it secured was a service which at busy times now delivers an experience little better than dial-up internet. It is a depressing saga of incompetence. 

What We’re Doing to Fix NBN

As I have argued, the range of difficulties faced by the NBN is sobering.  But in a calm and measured way, we are now hard at work on getting NBN turned around and going in the right direction. 

Competent Board, Competent Management

The first priority has been to put competent, experienced people onto the board, and in senior management positions.

We started, within weeks of the election, by appointing Dr Ziggy Switkowski as NBN Co’s Chairman, with the additional responsibility of serving as Executive Chairman until such time as a new CEO was in place. Ziggy is one of the most experienced telecom executives in Australia; a former CEO of both Telstra and Optus.

Next, Telstra veteran Greg Adcock was appointed as Chief Operating Officer.  He is already in place and hard at work.

We also added further expertise to the board, appointing telecoms construction expert Patrick Flannigan; former Internode CEO Simon Hackett; and former OzEmail and Telstra executive Justin Milne.

As Chief Executive Officer, NBN Co has appointed an extremely experienced global telecommunications executive, Bill Morrow.  Bill will soon finish his current job as CEO of Vodafone in Australia.  He has a very impressive global track record in the telecommunications sector, including being a former Europe Chief Executive with Vodafone Group and running the Group's businesses in Japan and the UK. 

By making these appointments, we are moving this project away from the world of spin and politics and ideology and into the world of business and rational decision making.

A Detailed Strategic Review – Underpinning a credible rollout plan for fibre

Our next step in getting the NBN back on track, has been for NBN Co to develop, and commit to, a strategy to most cost effectively and rapidly roll out its fixed broadband network.

We were determined that this should be NBN Co’s strategy – rather than an attempt to reverse engineer a plan to meet targets imposed at a political level.

Mike Quigley made it clear in a media interview in December 2013 that this was the position he found himself in, when he said,“You do think, should I have been more conservative? But the timescales are already set for you, the time frames are already put out there for you so there’s not much you can do.” [11]

That’s why an immediate priority was for the company – supported by expert consultants – to conduct the Strategic Review. 

The findings of that review, delivered late last year, will set the backdrop for a credible rollout plan.

We have always said that the NBN rollout should be technologically agnostic. Around the world, high speed broadband is being deployed quickly and affordably using a range of technologies.

Through the Strategic Review, NBN Co has advised the Government that to deliver fast broadband sooner, at less cost to taxpayers and more affordably for consumers, the NBN should be completed using a multi-technology mix.

 

Optimising the technology for the context

A more rational approach to using the right technology will apply across the range of NBN Co’s activities. Let me highlight one specific example – the choice of technology to use in apartment blocks.

Under the previous regime, there was a near religious insistence that NBN Co needed to install fibre to every apartment – although the standard practice around the world is to install fibre to the basement of large buildings and then run over the internal copper after that.

We are now in a more rational world – and NBN Co is running a fibre-to-the-building pilot program to examine new ways to accelerate the rollout of the NBN. 

The pilot will roll out in up to ten large office complexes and apartment blocks and is scheduled to run for approximately three months.

The early results are encouraging. In one apartment building in Melbourne, with over 150 metres of internal copper wiring, download speeds of 108 mbps have been achieved, and upload speeds of 48 mbps.[12]

Putting it in a broader policy context

The Strategic Review looked at NBN Co’s strategy from the perspective of the company. But we also need to look at the broader public policy objectives of rolling out a national broadband network - stimulating takeup, stimulating competition, and increasing Australia’s participation in the digital economy.

So the government has appointed a Panel of Experts – Michael Vertigan, Alison Deans, Henry Ergas and Tony Shaw - to conduct an independent cost-benefit analysis of broadband and a review of the regulatory arrangements for the National Broadband Network.

They bring decades of relevant experience across telecommunications, economics, public policy and digital business.

The Expert Panel will address a number of key questions:

•         What is the direct and indirect value, in economic and social terms, of increased broadband speeds, and to what extent should broadband be supported by government?

•         Given the Coalition’s policy objectives, what are the optimal long-term ownership and regulatory arrangements for NBN Co?

•         How should the activities of NBN Co be constrained given its mandate to efficiently build, operate and maintain a wholesale-only access network?

•         How should NBN Co’s capital investment, products and pricing be reviewed and regulated?

•         Are NBN Co’s products structured to promote efficiency, consumer choice and competition?

Regional and Remote Comms

Having spoken about our strategy to get the NBN back on track, I want to touch briefly on regional and remote communications. This is always a priority area for a Coalition government, and it is one where Malcolm Turnbull has asked me to have a specific focus. We are pursuing several priorities.

The first is to maintain the satellite and wireless rollouts.

We have always acknowledged that the choice of wireless and satellite as technologies for NBN Co to use in serving rural and remote Australia is sensible, and we have made it clear that we will proceed with the fixed wireless and satellite  networks serving the least densely populated parts of Australia.

Our second priority is improving the operational performance of the wireless and satellite businesses.

The fixed wireless build is proceeding very slowly. Today, the wireless network covers just over 65,000 premises, with less than 8500 activated.[13]

This is an underwhelming performance, nearly five years after Kevin Rudd and Stephen Conroy first announced the NBN.   It compares very unfavourably with Telstra’s achievement, under Sol Trujillo, of rolling out the NextG network around Australia in a little over a year.

NBN Co has recently commenced a Strategic Review of its wireless and satellite business operations, and this is expected to report to the board within the next two months. This is a logical next step after the first Strategic Review which concentrated on the fixed network.

A third priority for the Coalition is to deliver fixed broadband services to more country towns than under Labor’s plan. 

Under the Coalition’s plan to make extensive use of fibre to the node, in some country towns which would have missed out under Labor it will be feasible to deliver a high speed fixed line broadband service.  For example, in a small town where just about every building is within a few hundred metres from the exchange, then just by putting equipment into the exchange, without building any nodes, it will be possible to give much of the town VDSL.

Our fourth priority is to leverage the NBN build to better support mobile communications. 

To take one question, if NBN Co builds a tower to deliver fixed wireless services, could that tower also be used by a mobile operator to deliver mobile wireless services? 

Would that make it cheaper and easier for mobile operators to serve larger areas of regional and remote Australia than they presently do?  In the economic jargon, are there economies of scope between building a fixed wireless network and a mobile wireless network? 

These are questions which NBN Co has been specifically asked to consider, as part of the strategic review looking at the wireless and satellite parts of the business. 

Our fifth priority is to give specific funding support to extend mobile coverage in rural and remote Australia, under our policy to invest $100 million to expand the mobile coverage footprint and increase competition in regional Australia.

Part of a broader Digital Economy Strategy

Let me turn finally to the broader question of the government’s strategy for the digital economy.  An improved broadband infrastructure is part of a digital economy strategy – but certainly not the totality of it, despite the impression which the previous government sought to create.  For example, its National Digital Economy Strategy, issued in May 2011, says on the cover page, “Leveraging the National Broadband Network to drive Australia’s Digital Productivity.”

Let’s drive for ubiquity

The first point to make, of course, is that if the NBN is to be an underpinning driver of  our digital economy, then access to broadband must be ubiquitous, retail prices must be affordable, and take-up must be as high as possible.

This is another key reason for turning away from the existing rollout strategy which is proceeding so slowly.  Our approach is designed to deliver broadband more quickly – as well as at lower cost to taxpayers - than the previous government’s approach.

The sooner we have ubiquitously available broadband, the sooner that business and government can make use of it by providing more convenient or less costly services.

Role of e-Government

Let me turn next to how the Coalition intends to leverage the role of government as a provider of services online.

The Coalition’s E-Government and the Digital Economy Policy sets out a plan to designate the internet as the default way to deliver all major government services.[14]Research by ACMA shows that 82 per cent of Australians expect Government to deliver services online.[15] Online delivery saves money too – research in the United Kingdom has shown that online transactions are up to 50 times cheaper than face to face and 30 times cheaper than post.[16]

However only a little over one third of Australians accessed government services online (at all three levels of government) in the six months to May 2013.[17]Low take-up suggests services are not what users need or expect.This could be because many online services are not end-to-end digital, requiring users to complete part of the transaction off-line or because services are presently not designed around the needs of the user.

Making services end-to-end digital means that initial registration for services and establishing identity can be undertaken online, all paperwork can be completed and lodged online rather than in hard copy, required data can be obtained from third parties electronically, and interviews and other services that are required to be undertaken face-to-face can be delivered via video .

Focusing on creating more online services that are end-to-end digital, as well as making these services as accessible and user friendly as possible, should drive greater uptake of the services. A key enabler of success will be to design services for platforms that clients use the most, including mobile devices such as smartphones and tablets.

There is considerable work underway on this front. For example, we are doing scoping work for the establishment of a Digital Service Standard and Digital Design Guide to guide agencies in developing digital service solutions. The Government is also scoping the introduction of secure digital mailboxes for Australians on an ‘opt-in’ basis.

The government is conducting numerous trials using video-based software solutions to deliver government services via video. For example, the Department of Human Services is providing a range of seminars, assessments, interviews and other support services to clients via video, while the Attorney-General’s Department is trialling video-enabled legal aid services to increase legal assistance in regional areas.

Driving private sector innovation in the digital economy

I have talked a bit about government – but ultimately it is the private sector which is the beating heart of the economy – and which is fundamental to the digital transformation of our economy.

Visiting Silicon Valley as I did in January was a powerful reminder of the way that IT is disrupting every sector of the economy.

Many industries of course have already been disrupted - be it encyclopaedias, newspaper classified advertising, or recruitment and executive search. 

But there is clearly much more to come.

Square, for example, is re-designing the credit card industry to make it possible for millions of microbusinesses to accept credit cards.  If the big banks do not catch up, they could lose a big chunk of business to this new provider.

Coursera is allowing millions of students around the world to take courses online from well known academics at Stanford and other prestigious universities (including Melbourne, UNSW and UWA).  That is exciting for those students – but could mean less well known universities may struggle to hold on to students. 

The size of the prize is driving huge effort and investment directed at transforming today’s business processes, based on several interlocking trends.  

The pervasive availability of mobile networks is one such trend.  Big data is another: gathering and manipulating massive quantities of data to identify connections and linkages that would previously have been obscured. 

So a key policy question in Australia – as in other advanced economies – is making sure we are on the right side of these economic transformations.  How do we get as many Australian companies as possible generating innovative technologies which can be commercialised, to create jobs and growth?

An immediate priority is checking that Labor’s legacy policy settings  are not impeding innovation.

A good example is employee share schemes. These are a powerful tool used by start up companies and more established companies in the tech sector to attract talent – and very extensively used in Silicon Valley. But the previous government changed the rules – almost completely removing their usefulness in Australia. We hear regularly from the Australian tech sector of its significant concerns regarding the current tax  arrangements for shares and options and the costs and complexities associated with setting up employee share schemes.

The Government recently rebooted its review of employee share scheme  arrangements, holding a series of roundtable discussions with stakeholders earlier in the month to hone in on what needs to change in order to make these arrangements in Australia competitive with similar schemes globally.

We understand that without change, we risk leaving the Australian tech sector facing a competitive disadvantage.

Another area of importance to private sector ICT is crowd-funding models.  Australia has traditionally been short on capital – so there is an obvious appeal to using this new way of generating seed capital to get innovative ideas moving.

Crowdfunding however does bring with it a range of risks for investors. That’s why the Corporations and Markets Advisory Committee (CAMAC) released a discussion paper in September 2013 – looking to find the appropriate balance between harnessing the terrific potential of crowd sourced equity funding and managing its risks. CAMAC will report its findings to Government in the first quarter of this year.

Conclusion

Let me conclude by returning to the theme with which I started my speech to this conference a couple of years ago.

I said then that Australia was living through an extraordinary experiment in public policy in information and communications technology, with Labor’s approach to NBN being way out of line with anything previously done in Australia, or in virtually any other country.

As Malcolm Turnbull said when launching the Coalition’s NBN policy in April last year, “We would not have started from here.”

Today I have sought to highlight some of the major strategic errors Labor made with the NBN; and some of the troubling disparities we discovered upon coming to government, between what the previous government was telling Australians, and what the reality was.

All of that is important, because it sets the starting point which this government faced.

But of course now the Abbott Government has it hands on the levers – and so I have also sought to explain the key directions we are now following to get this project back on track, as well as the broader context of the digital economy.

Australia’s communications infrastructure – and the economic potential it can create – is of the highest importance to our national life and prosperity.  That is an issue on which there has never been any dispute between the two major political parties.

How to turn that statement of principle into a practical plan of action has, by contrast, generated acute political controversy. 

As the Coalition executes on our planned approach, we aim to see a lot less energy spent on the politics – and a lot more going into delivering, as rapidly and cost-effectively as possible, a profound improvement in our broadband infrastructure.

Then we can all – citizens, businesses and government – get on with capturing the economic and social potential which such an infrastructure can offer.



[1]Stephen Conroy, Media Statement, “Australia’s broadband penetration falls further behind”, 25 May 2005
[2]Stephen Conroy, Media Statement, “OECD’s Broadband Broken Record: “Australia continues to trail the developed world”, 16 October 2006
[4]Historical time series, Fixed and Wireless broadband penetration (June 2013),http://www.oecd.org/internet/oecdbroadbandportal.htm, downloaded 14/2/14
[5]Broadband Deployment Update,  December 2013, http://www.beehive.govt.nz/release/more-quarter-ufb-project-completedownloaded 13/02/14
[6]NBN Co, “NBN Co meets revised end-of-year fibre rollout target”, Media release, 4 July 2013
[7]Mr Mike Quigley, CEO, NBN Co, Hearing of the Joint Committee on the National Broadband Network, Friday 19 April 2013, page 14
[8]Mr Mike Quigley, CEO, NBN Co, Hearing of the Joint Committee on the National Broadband Network, Friday 19 April 2013, page 14
[9]NBN Co, Answer to Question on Notice, Question Number 4, following Hearing of the Joint Committee on the National Broadband Network, Friday 19 April 2013
[10]NBN Co Strategic Review Findings, December 2013, page 17
[11]The Guardian, “Labor's broadband plan was one hurdle from success, says former NBN chief”, http://www.theguardian.com/technology/2013/dec/03/labors-broadband-one-hurdle-from-success
[13]NBN Co, Weekly Summary – National Broadband Network,  Rollout Information (week ending 9 February 2014)
[14]The Coalition, The Coalition’s Policy for E-Government and the Digital Economy, September 2013.
[15]Australian Communications and Media Authority, Communications Report 2011-12, November 2012, p. 114.
[16]UK Cabinet Office, Digital Efficiency Report, November 2012.
[17] Australian Communications and Media Authority, Communications Report 2012-13, November 2013, p. 125.

Authorised by Paul Fletcher MP, Level 2, 280 Pacific Highway Lindfield NSW 2070.

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