Last night’s hearing of Parliamentary NBN Committee – Disappointing Performance by NBN CEO Mike Quigley

Last night we held a hearing of the Parliament’s Joint Committee on the National Broadband Network.

This committee is supposed to be the mechanism by which the Parliament oversees the massive ($50 billion plus) investment in the national broadband network – and the activities of the board and management of NBN Co.

After all, Labor keeps telling us this is the biggest infrastructure investment in Australia’s history.

Unfortunately, the committee is not working very well as a mechanism for public scrutiny of decisions made by NBN Co and its management team.

For example, I was interested to understand the decision made by NBN Co to spend over $800 million under a deal with Optus under which Optus will cease providing services over its HFC (hybrid fibre coax) network.  Instead, the customers Optus currently has will be transitioned across to the NBN. 

Which raises the obvious question: how much is NBN Co paying for these customers?  According to Optus’ most recent quarterly results, the company has around 500,000 telephony customers on the HFC network.  If we take the larger number, and divide it into the $800 million being spent by NBN Co, this suggests NBN Co is paying around $1600 per customer.

The next obvious question: how does this compare to what NBN Co is paying for the Telstra customers it is going to acquire.  Telstra’s December 2010 financial results reveal that Telstra has around 7.3 million retail services in operation.  When you take the $4 billion that Telstra says it will be paid in exchange for disconnecting these services so they can transition to NBN Co, it produces a per customer figure of around $550.

So why is NBN Co paying Optus around three times as much per customer as it is paying Telstra?  This is an important question – and the Joint Committee is the obvious place to ask it.

Unfortunately, although I asked four times, NBN CEO Mike Quigley refused to tell me. He gave the clear impression he thought the comparison was not a valid one to make.  He certainly made no effort to explain why NBN Co was paying so much more to Optus on a per customer basis, and whether it was getting extra value in exchange. 

The transcript of this part of the hearing is set out below. I for one believe it shows that the CEO of NBN Co has the wrong approach to disclosure. The question is entirely legitimate and the Australian people – whose money NBN Co is spending – have a right to know the answer.

Mr Fletcher: Thank you. Under the deal with Optus, as distinct from the deal with Telstra, is it correct that what NBN Co. is paying for is in effect the transfer of customers from Optus's network to NBN Co.'s? You are not separately acquiring the use of Optus assets or facilities?

Mr Quigley: That is correct. We are not acquiring assets.

Mr Fletcher: There has been some commentary that the per customer price that you are paying under the Optus deal is substantially higher than the per customer price represented by the Telstra deal. What would your comment be on that?

Mr Quigley: First of all, commentary from whom? People who might know?

Mr Fletcher: A range of people, but let me put the question another way. What is the price per customer that you are paying to Optus as compared to the price per customer that you are paying to Telstra?

Mr Quigley: I am not at liberty to divulge that information. It is commercially sensitive information from either Telstra or Optus.

Mr Hartsuyker: $800 million divided by 500,000 will give you $1,600, would it not?

Mr Quigley: I would suggest the calculation is not that simple.

Mr Hartsuyker: Do you want to enlighten us?

Mr Fletcher: Is it correct that you are paying significantly more on a per customer basis under your deal with Optus than you are under your deal with Telstra?

Mr Quigley: In our deals with both Optus and Telstra we naturally tried to keep the deals as aligned as we possibly could. That was not always possible everywhere but that was my aim—to keep the deals as aligned as possible.

Mr Fletcher: I repeat the question. Is it correct that you are paying more on a per customer basis under the Optus deal than under the Telstra deal?

Mr Quigley: You cannot compare the two deals. You cannot take one element of the deal and compare them.

Mr Husic: And that is because the Telstra deal involves—

Mr Fletcher: Sorry.

Mr Husic: I was just trying to close the gaps. Sorry.

Mr Fletcher: No, I appreciate your assistance.

Mr Husic: I was not asking a different question—it was on that line of questioning. My apologies.

Mr Fletcher: Can you take that on notice and come back to us with advice on that point?

Mr Quigley: I can tell you that I cannot advise you on the point because it is commercially confidential and in addition there is no direct comparison. You cannot do a direct comparison; the two deals are different.

Mr Fletcher: When you say you cannot do a direct comparison, isn't it the case that under your deal with Telstra one of the components you are paying for that you have separately broken out is that you are paying Telstra each time a customer switches off on the Telstra network, and your deal with Optus similarly involves you paying Optus each time a customer switches off on the Optus network?

Mr Quigley: Yes, but we have two types of technology with Telstra and one type with Optus.

Mr FLETCHER: In each case what you are acquiring is a mix of broadband and voice-only customers—is that right or not?

Mr Quigley: Yes, but in one case we are paying for disconnection and in the other case we are paying for migration. In one case we are paying for a mix of two technologies and in the other case we have just one technology. You cannot compare them.

Mr FLETCHER: Let me get this clear. What you are putting to the committee is that, after you have done a deal in which you are committing to spend $800 million with Optus and several billion dollars with Telstra—money which is sourced in its entirety at the present time from taxpayers—you are not prepared to disclose to this committee the basis for any difference between the per-customer valuations that you are paying to Telstra or Optus.

Mr Quigley: But, as I said, I have made the very best effort to keep them as aligned as I possibly could.

CHAIR: Is it a value for money question? The line of questioning is in relation to value for money for the overall project or—

Mr FLETCHER: That is certainly one of the questions which is raised by this.

CHAIR: By using a direct comparison between the two deals?

Mr FLETCHER: Absolutely. It would be a standard commercial metric you would apply. If you are paying for, in effect, the transfer of a customer base, you would ask yourself how much you are paying per customer. That is a very standard way you would approach this. So my question to Mr Quigley is this. Let me be clear. Are you putting to us that there is not a material difference between the amount per customer that is being paid to Telstra and the amount per customer that is being paid to Optus?

Mr Quigley: I would say, in the context of the two deals, that we did everything we could to keep them as aligned as possible. You just simply cannot pick a number out and another number out and compare them. You need to look at all of the factors that go into making up the deals.

Mr FLETCHER: So what you are putting to the committee is that it is inappropriate to analyse this in terms of a per-customer valuation?

Mr Quigley: Yes, I am saying if you want to analyse the deals they are extraordinarily complex. We had advice from investment bankers and we had advice from a lot of people. We have done a lot of work on analysing those. It is very difficult to pull out two numbers and say we should compare those. It would be misleading of me to do so.

Mr FLETCHER: Let me put the question another way.

CHAIR: This might be the last way. I think that is the fourth way you have put the question.

Mr FLETCHER: It is an important question, Mr Chairman. I am just trying to get some illumination here.

Are you putting to the committee that, to the extent that there is a difference between the value per customer paid to Telstra and to Optus, it is because of the difference in the value NBN Co. is receiving under those two deals? In other words, are you putting to us it is management's assessment that, while you may be paying more to one than the other, that is justified by the difference in the benefit that NBN Co. is receiving as a result of the deal?

Mr Quigley: Clearly, we would only pay what we put a value on and we would pay what we thought was the appropriate amount for value. Those value equations are different in the two deals.

Mr FLETCHER: So my question to you would be: could you provide to the committee an explanation of which deal involves a higher per-customer cost and what is the value benefit that you get in exchange for the higher per-customer amount being paid?

Mr Quigley: No, because I do not understand what you mean by per cost. Are you talking about just the straight dollar value? So just in dollars? Is that what you are talking about?

Mr FLETCHER: Yes.

Mr Quigley: If one is bigger than the other? But they are not related to the same thing.

Mr FLETCHER: So what I am asking you is: if one is bigger than the other why is that?

Mr Quigley: I can tell you now. For example, one is a migration. The other is a decommission. One is for two types of technology. The other is for one type of technology. There is a whole bunch of commercial commissions, some of which I am not prepared to reveal because they are commercial deals with two external companies. But I JobDate JOINT Page 16 NATIONAL BROADBAND NETWORK COMMITTEE

can assure the committee that the company took a great deal of time and care in making sure that we protected taxpayers' funds in these deals.

Mr FLETCHER: And that assurance would carry a great deal more weight if you would give us the specific figures and the rationale for any difference in the figures.

Mr Quigley: I cannot give you the specific figures, because they are confidential. But what I can assure you is that there have been independent reviews—as you probably know—of the deals commissioned by the government.

CHAIR: Will they remain confidential?

Mr Quigley: In that case, I think yes. Some specific figures will probably remain confidential.

Mr FLETCHER: It was argued by Kevin Morgan in a piece on Monday that the price per customer being paid under the Optus deal is substantially higher than the price per customer being paid under the Telstra deal.

Mr Quigley: How would Mr Morgan know?

Mr FLETCHER: My question to you: is that right or not?

Mr Quigley: As I have said, I cannot answer that question in those terms because the two deals are different.

CHAIR: We might need to move on. I think that you as best an answer as you are going to get tonight. Do you have more questions?

Mr FLETCHER: I do have my questions. I do not think that I have had a very satisfactory answer at all, in fact, but I will move on.