Wed, 23 Sep 2020 - 13:24
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National Press Club Address

Thanks to COVID, 2020 has been the year of working and studying from home, of Zoom and Skype and Teams and Webex and BlueJeans and many other videoconferencing apps.

Which has also made it the year when having a good home broadband connection really, really mattered.

When Australia needed it, the NBN delivered. 

I am proud of the hardworking people at NBN, at Telstra, at Optus, at Vodafone, at TPG, at Vocus, at Aussie Broadband and right across our telecommunications industry.  To them I say: you’ve done a mighty job for our country in 2020.

And I am proud that our Liberal National Government took a failed project and got it back on track.  Under three successive Ministers - Malcolm Turnbull, Mitch Fifield and now me - we have followed a consistent plan.

We wanted to get the NBN rolled out fast – and thankfully when COVID hit 98 per cent of households were able to connect to the NBN.

And in line with our plan, today we are announcing the next stage of growth for NBN.

Today, I want first to speak about where the NBN has got to – and how we got here. 

Then I will talk about the next stage for NBN we have announced today – with eight million homes and businesses, including 90 per cent of all businesses in Australia, able to have a one gigabit per second blazing fast broadband service by 2023.

Lastly, I want to talk about how important this is for our economic recovery – with 25,000 jobs to come from this major infrastructure investment.

Where we are now and how we got here

Let me start by reminding you that in 2013 Labor had spent $6.5 billion on the NBN, contracted to spend many billions more – and yet had connected barely 51,000 premises to the fixed-line network.

We moved quickly when we came to government. We cleaned out the board and appointed directors with serious telecoms experience. We set up the Strategic Review to find out what was really happening.

And based on its findings we made a plan to get the NBN rolled out much more quickly and cost effectively.  At the heart was the ‘multi-technology mix’ – of fibre to the premises, fibre to the curb, fibre to the node and hybrid fibre coax. [1]

The plan worked.  Seven years on, 11.8 million premises – over 99 per cent of the total – are able to connect to the NBN.

There are 7.5 million connected right now – growing by up to 30,000 premises a week.

From 2007 to 2013, Labor went from zero premises connected to 51,000 premises connected. From 2013 to 2020, we went from 51,000 to 7.5 million. 

That almost all Australians can now connect to the NBN is one marker of success.

Another is that NBN increasingly meets Australians’ needs when it comes to the speeds they take, the prices they pay and the amount of data they download.

Today 70 per cent of existing customers and 80 per cent of new customers choose retail plans with peak speeds of 50Mbps or higher.

As for price, the story is very simple – broadband today is not only much, much better quality than a few years ago, it is also much, much cheaper.

According to the ACCC, in the four years starting in 2014-15, the retail price of a 50Mpbs service fell by 38 per cent in real terms from $144 per month to $89 per month.[2]

The price of the 100Mbps service fell by a similar margin.[3]

In fact, with data consumption growing at a steady rate of around 25 per cent per subscriber per year, the price of CVC has dropped significantly. NBN Co’s CVC – the Connectivity Virtual Circuit – charges, the variable cost component of NBN pricing, have halved on a Mbps basis since 2016.

As well as developing the network, NBN Co has also worked to develop its pricing and products, to meet the needs of different segments.

Late last year it introduced a new entry-level product designed for budget-conscious households.

At the other end of the scale, earlier this year NBN Co launched new super-fast and ultra-fast plans – offering peak speeds of 250 Mbps and up to 1 gigabit per second (Gbps) respectively - at markedly lower prices than existing products.[4]

Another marker of NBN’s success is continuing strong growth in the amount of data that we all use.

In 2010, the average amount of data downloaded over fixed line networks in Australia was just 10 GB per month.[5]

By December 2019 that number over the NBN was 258 GB.[6]

That’s a very strong underlying trend – and it’s since been supercharged by COVID driven changes in customer behaviour.  By June this year it reached almost 300 GB.[7]

Network wide, NBN hit its highest ever data download one night in early August, at 16.2 Terabits per second - a 47 per cent increase on the pre-COVID traffic baseline.[8]

During the pandemic the amount of data being downloaded during the day, with so many people working from home, was up around 70 per cent on pre-COVID-19 levels.

Very importantly, videoconferencing requires uploads as well as downloads – so with lots of people working from home over video, uploads are up nearly 110 per cent.[9]

Across a year, the average Australian downloads around 3.6 Terabytes of content.[10] To put that in context, it equates to about:[11]

  • 10,000 hours of streaming music
  • 3,000 hours of surfing the web
  • 14,000 social media posts
  • 1,400 hours of high definition video streaming
  • 1,200 hours of gaming

In the last six months COVID has helped to bring forward demand that would otherwise have taken years to play out.  It seems very likely that at least some of that increased traffic load will be permanent.

As NBN Co has built momentum operationally, so too has it built momentum in its financial performance. 

Revenue in the year just gone was $3.8 billion, up 36 per cent on the previous year, driven by strong activations across both residential and business customers.

There was a strong demonstration of confidence in NBN’s business model and cashflows in April this year, when NBN Co successfully raised $6.1 billion in the private debt markets.

Network upgrade initiative – pivot to the future

Putting all of this together, with NBN’s volume rollout largely complete, with cash flows strong and rising, and demand for broadband steadily increasing, we can now move to the next stage of NBN’s growth.

We set out a plan in 2013; we have executed on the plan in a disciplined and methodical way. The result: today we have a network available to just about every Australian, offering a baseline speed of 25 Mbps.

That means we are now in a position to build on the existing network architecture and drive fibre deeper and closer to homes and businesses.

Business Fibre Zones

Yesterday, in Port Macquarie, I joined Regional Communications Minister Mark Coulton to announce a major network upgrade, targeted at small and medium businesses including in regional Australia.

As we rebuild economic growth, greater digital capability for Australia’s small and medium businesses is critical. 

NBN will invest $700 million over three years to open new opportunities for businesses around Australia to participate in the digital economy. 

Under the Business Fibre Initiative, up to 90% of all business premises in NBN’s footprint nationwide will have access to fibre-optic business grade connectivity.

We have designated 240 Business Fibre Zones across the country, covering more than 700,000 businesses, including 250,000 regional businesses.

If your business is located in a business fibre zone, you will be able to order a fibre optic connection, supporting a speed of up to 1 gigabit per second, at no upfront cost, through a retail service provider.

This initiative will also bring better pricing to many businesses.  Today, only twelve per cent of business locations in the nbn fixed line footprint have access to CBD Zone pricing – that’s NBN Co’s lowest wholesale pricing tier – for high speed business broadband.

But now, for any business located in a business fibre zone, that changes: you can now can get the same premium grade services and the same wholesale prices as if you were located in the centre of our biggest cities.

In fact, wholesale prices will drop by up to 67 per cent – meaning the 700,000 businesses located in business fibre zones can now expect to be able to order fibre connections from their retail service providers at much lower prices than were previously available.

14 Business Fibre Zones will be situated in health precincts, including at least one in each State and Territory.

Inevitably there will be some areas which have not been included in the 240 business fibre zones, but where local businesses are keen to see network upgrades.

NBN Co has therefore set aside a $50 million fund from which it could co-invest with local councils, with state governments, or with business groups to turn additional locations beyond the 240 into business fibre zones.

Network Upgrade Initiative

This morning I joined with NBN CEO Stephen Rue to announce that, in addition to its business network upgrade, NBN Co will make a $3.5 billion investment in its residential network.

This is a very big new infrastructure project – with new fibre to be built passing around two million premises over the next three years and upgrades to NBN’s HFC and FTTC networks.

It means that by 2023, 75% of all fixed line premises in Australia will be able to order ultra-fast broadband speeds, up to 1 gigabit per second.

We can do this now because the volume rollout is now largely complete; because NBN’s strong financial and operational performance means it can borrow against future cash flows; and because broadband demand is growing strongly.

And we can get it underway almost immediately – because NBN has a workforce in place right now.  In the much overused phrase, this is a genuinely ‘shovel ready’ project.

It is more efficient to move to the next upgrade phase right now – rather than downsizing NBN’s workforce, both including direct employees and delivery partners, waiting for several years, and then ramping up again.

Let me explain four different parts of the upgrade.

First, NBN Co will spend $2.9 billion to take fibre deeper into the FTTN footprint. This will allow two million homes which are today served by fibre to the node (including 950,000 in regional areas) to order speeds up to 1 Gigabit per second (Gbps) by 2023.

Second, it will invest $400 million to upgrade the HFC network – allowing all 2.5 million homes in the HFC footprint to order gigabit speeds from December 2021.

Third, NBN will commit $100 million to a speed uplift program for the 1.5 million homes served by fibre to the curb (FTTC.)  This will give them access to gigabit speeds through enablement of G.Fast capability by 2023.

Fourth, NBN Co will allocate $50 million for a program to target in home wiring in the homes of customers served by the FTTN network.  Problems within the home can often mean speeds are 5 to 20 Mbps less than they could be; a focus on this issue will bring noticeable improvements to many customers.

This is a major investment – but it is a logical extension of NBN’s path to date.  Between 2016 and 2020, the share of customers ordering a 50 Mbps or higher speed has risen from 15 per cent to 70 per cent. 

Earlier this year NBN Co relaunched products at much higher speeds: Home Superfast at up to 250 Mbps and Home Ultrafast at up to 1 Gbps.

Today’s announcement means a massive jump in the share of premises able to order gigabit speeds: for home ultrafast it goes from 18 per cent of the fixed-line footprint to 75 per cent.

Another part of the plan I want to highlight is a significant commitment to upgrade the NBN in regional Australia.  NBN Co has set aside a $300 million fund to co-invest with state, local and federal governments in programs designed to enhance broadband access technologies for rural and regional Australia.

This plan makes good financial sense…

The investments we are announcing today make good financial sense. 

They boost the Internal Rate of Return from 3.2 per cent to 3.7 per cent – and add significant value to this critical national asset.[12]

But they do not need additional equity or debt from Government.

We said we would cap government funding for NBN at $49 billion – that cap stays in place.

We said NBN will refinance its $19.5 billion loan from the government by 30 June 2024 – and that will not change.

This plan is possible because NBN Co has now proved its business model and is generating substantial and growing cashflows – in turn allowing it to borrow in the private debt markets.

NBN Co CEO, Stephen Rue will provide further detail later today, when he formally releases the latest Corporate Plan covering the next four year period, which incorporates all the elements that I have spoken about today.

…in stark comparison to Labor’s plan

Let me emphasise that we are committing to more fibre when it makes economic sense to do so.

Labor’s plan by contrast was to build fibre everywhere, well before people actually needed it or were willing to pay for it.

The strategic review recommended a different approach: start with fibre to the node and upgrade over time once demand began to build for the very highest speed services.

 

The Review said:

…it is economically more efficient to upgrade over time. In addition, upgrading over time provides significant economic ‘option value’ for NBN Co as technologies evolve, enabling NBN Co to utilise the most appropriate upgrade technology at the time.”[13]

This is exactly what we are doing.

By 2023, when two million more premises are able to order a fibre service, the FTTN network will have generated more revenue than it cost to build and run. It will have paid for itself.

Of course, the FTTN network will operate for many years beyond 2023, giving very good service to those customers who do not want ultrafast broadband, and continuing to generate financial returns. 

In the rollout since 2013, we have been much more prudent with capital than Labor. In this next phase we will again be prudent.

The upgrade will re-use the new fibre built as part of the FTTN rollout, and extend it further into the suburbs. 

NBN will only build the expensive fibre lead-in if and when a customer orders a higher speed plan. 

This on-demand model is used with great success by Chorus in New Zealand and Openreach in the UK - and we’re very happy to copy it. 

By contrast, under Labor’s wildly profligate approach, expensive fibre lead-ins were built to every home - whether or not the customer actually wanted broadband at any speed, let alone ultrafast speeds.           

In some reported cases it cost as much as $90,000 to connect a single home to the NBN. [14]

What these investments mean for Australia

These new investments are targeted and demand driven. They will make NBN Co more profitable and boost the value of the Government’s equity stake in NBN Co.

That is important to NBN – as well as to the millions of Australians who use the network, many of whom will not have new options.

But it is also important for the nation, for jobs and for the economy.

Analysis by AlphaBeta shows that this rollout will create 25,000 direct, indirect and induced jobs across Australia.[15]

Up to 16,600 of these jobs will be in construction, engineering, and project management. A further 4,400 jobs will be created further up the supply chain, in retail trade and transport, with the last 4,000 being in response to this greater economic activity.

These new jobs will be created almost immediately.  89 per cent of the jobs impact will occur over the first two years of the program, with peak job creation of 25,000 in FY22.[16]

As well as short term job creation, this NBN upgrade will bring long term productivity benefits – estimated to lift Australia’s GDP by $6.4 billion a year by 2024.[17]

The benefits will be felt in our cities and in our regions. 1.4 million homes and businesses in regional Australia will gain access to gigabit-capable broadband.

Economic consultants AlphaBeta have modelled the impact of this investment. They find it will generate $1.5 billion in additional GDP for regional Australia by 2024; support the creation of an additional 2,800 regional businesses; and create around 10,000 jobs in regional Australia.

The macroeconomic benefits of this investment are important; so too are its microeconomic effects.

Australia has a productivity challenge – and we know that an important way to boost productivity is to increase the take up of IT in small and medium businesses. 

New cloud-based apps give these businesses much more efficient ways to operate.

Business grade, symmetrical broadband is becoming ever more important for businesses - for cloud applications, secure storage, large file transfers such as video and databases, and to enable all employees to hold simultaneous videoconferences without impacting other business processes.

During the COVID period, we have seen many businesses driven online and decentralising their workforces. Much of this is likely to persist even when the pandemic is passed.

A gigabit capable network available to 75 per cent of the fixed-line footprint will be a vital national asset. It will help Australian businesses to operate in the new digital world; and it will boost Australia’s competitiveness as the global economy recovers from the impact of COVID-19.

 

Conclusion

Let me conclude, then, with the observation that 2020 has been a watershed year for the NBN.

It faced – and passed – a test when demand spiked to unprecedented levels due to COVID.

The volume rollout is almost complete.

And now we are announcing the next stage in the network’s evolution – committing that by 2023, 75 per cent of fixed line premises will be able to access a 1 gigabit per second ultrafast broadband service.

Seven years ago this would have seemed unimaginable.

But the plan we laid out in 2013 has delivered – and now we can put in place the next stage of the plan.

NBN was key to getting through COVID – and with this plan NBN will be an important part of our economic recovery after COVID.

 

[1] NBN Co Strategic Review – December 2013, p. 19.

[2] ACCC Communications Market Report 2018–19, p. 29.

 

[3] ACCC Communications Market Report 2018–19, p. 30.

[4] See NBN Co, Pricing Review 2019 Consultation Closure Paper, 2019.

[5] ABS Internet Activity Report December 2010.

[6] NBN Co media release. Australia's nbn data usage surges by almost 25%.

[7] NBN 2020-21 Corporate Plan, p32

[8] NBN Co, Australian Broadband Data Demand: new peak in data demand, 14 August 2020

[9] NBN 2020-21 Corporate Plan, p30

[10] ACCC Record Keeping Rule December 2019

[11] https://www.att.com/support/data-calculator

[12] NBN 2020-21 Corporate Plan p.54

[13] NBN Strategic Review, 2013 p19.

[14] https://www.abc.net.au/news/2017-10-23/nbn-trials-cheaper-technology-to-reduce-digital-divide/9074790

[15] AlphaBeta research 2020

[16] AlphaBeta research 2020

[17] AlphaBeta research 2020