Well, thanks very much Melinda. Congratulations to you on this latest tour of duty of two weeks, and important to acknowledge that you have had many significant previous incarnations and I know you'll do a fabulous job as CEO of CEDA. And, can I also acknowledge the thought leadership that CEDA has provided in the political space over many years.
Well, ladies and gentlemen, today I'm going to lead with a big claim. In less than three years Australia is set to become the first fully connected continent in the world. By 2020, 11.6 million homes and businesses across the nation will have the option to link to the NBN, and more than 8 million homes and businesses will have undergone the switch. And I mention this at the outset because the theme of today's speech is unlocking the potential of the digital economy. And I think all of you probably sense that the NBN is now being talked about more often and there's a reason for that. And that is because it's here. It's no longer just pins on a map.
The NBN has now arrived at more than half the premises in Australia. And, despite its absolutely colossal scale and the unmatched scrutiny it receives, it is often misrepresented. Understanding of the project is often limited to the superficial. It's frequently fuelled by partisan attacks and the media's ever prone thirst for clickbait headlines. And the latest example was published last week in the Australian Financial Review under the absolute howler of a headline 'NBN slower than Kenya and the ex-Soviet bloc. Now, let me just give you one small missing fact in that story: Kenya has a broadband penetration rates of less than 1.75%. In other words, almost all of Kenya's 45 million residents have no access to fixed broadband connection at all. Australia's connection rate, in contrast, is at 90% and most of these lines haven't yet switched across to the NBN.
Today, NBN is available to 6.4 million Australian premises. More than 3 million premises have already made that switch to NBN, but at least 5 million more premises are still to do so over the coming years. And just for the record, so it's complete. There are only 187,000 fixed broadband subscribers in Kenya, while the former Soviet bloc collectively has a fixed broadband penetration rate of subscriber rate of 16.5 per 100 inhabitants*. So when you hear someone say Kenya's got better broadband than Australia, it's rubbish and give them a clip over the head.
Now, I've got that off my chest, just looking ahead. The next few years, really, is when the big switch is going to occur in telecommunications. In this financial year alone, nearly 2 million households and businesses will disconnect from the old legacy networks and hook up to NBN. Now, this is an amazing statistic. This is happening at a rate of about 40,000 connections each and every week. Or, if you want to look at it another way, that's 1,000 every working hour. And it is in line with the targets that NBN set themselves back in 2015.
So, from a near standing start when we came into office, with only 51,000 homes hooked up by late 2013, despite $6.5 billion having been spent over 4 or 5 years, we're going to have 5 million NBN services operational by the middle of next year, and the build will be done and dusted by 2020, which is 6-8 years sooner than would have been the case under the approach of our predecessors. By comparison, in the United Kingdom, the incumbent wholesaler BT has only switched around 20% of its 25 million subscribers to fibre to the node technology over the last eight years.
So, what took the PMG and Telecom and Telstra the best part of seven decades to do, under this Government, NBN will complete in just 7 years. And in fact, in terms of connections, what it took NBN a year to do in 2014, now takes a little less than six weeks. And what we are seeing is our major infrastructure firms and the army of subbies working on the ground to complete this important national task at more than 15,000 sites in towns and cities simultaneously. There are more than 24,000 workers across the country who are now part of this venture. And most of them are employed by about 2,500 mum and dad subcontracting businesses and I'll talk a little bit more about NBN's contracting model later.
But, obviously today I do what to make the point that the NBN is just one element of the Government's telco reform agenda. And as Minister, I'm absolutely keenly aware that everything we do in this portfolio is to support and be an enabler for the broader economy.
But, I just want to touch briefly on two big agenda items. Firstly, an update on the NBN which if you haven't got the message by now was essentially a failed project in 2013 and today is meeting its targets for 2020. And secondly, I want to pick up where Andrew left off to look at our 5G future.
Now, when it comes to the NBN, understanding its economics is key to grasping challenges that it faces. To begin with, the project will require peak funding of $49 billion. To date, $29 billion has been spent on the rollout funded entirely by Government on behalf of the taxpayer and provided to NBN as equity. Of the $49 billion total, there's about $12 billion which will flow to Telstra and Optus in payments as they move their customers of the legacy infrastructure and shut down their residential wholesale businesses. A further $1 billion a year must be paid to Telstra in rental payments so that NBN can use Telstra's underground network of pipes and house its core electronics in Telstra's exchanges. Now, these contract payments are part of deals struck under the previous Government and that's when the ‘Big Government' decision was taken to pay competitors to exit the market and to begin a new network, essentially from scratch using a Government-owned startup to do it. If there's one way that this project can be compared to the Soviet bloc, that would be it.
Needless to say, with this structure and these overheads, it's an ongoing challenge to balance the ledger for the NBN. Importantly, we've directed NBN to deploy the most cost-effective technology for each part of Australia. What we call the 'multi-technology mix'. To do that within the parameters of 2020 completion. To do that within the peak funding range. And to do that which ensures that the NBN can be self-sustaining as well as affordable for consumers.
What we've done is, we've divorced NBN from the technological theology that had led to some truly absurd outcomes such as residential connections costing NBN upwards of $50,000 to build despite a revenue return of less than $50 a month. Yet, you will have heard them, there are calls for more taxpayer money to be spent on the NBN. The critics of our multi-technology mix approach claim that doing the once with fibre is the best way even if it costs more and takes longer to deliver.
But I've got to say, that sort of simplistic argument misses a key point. NBN's business model is highly sensitive to rollout delays. Not to mention the impact of denying fast broadband to Australians sooner. As an example, a 30% decrease in the planned activation rates for FTTN and HFC would add $2 billion to peak funding. That would put added pressure on NBN to lift prices to recover those costs. As a Government, we are absolutely as you know through the energy debate, keenly aware of cost of living pressures which is why affordability has been a central tenet of our approach to the NBN.
By any measure, NBN's CEO, Bill Morrow and his team have done an incredible job. Across three full financial years NBN's key financial rollout targets have been met. The network footprint has doubled year on year and capex has stayed on track. Now that sort of an outcome in the infrastructure game is almost unheard of. One of the reasons for this stark turnaround, which I refer to as one of the greatest corporate turnarounds in Australian history, is because of the new contractual arrangements that NBN has put in place which transfer some of the risk and reward to the contractors who are responsible for building the network. These contracts were developed in 2015 and enabled the main construction firms to compete for work and be rewarded based on performance in terms of cost and quality.
In a nutshell, under the former contract model, large volumes of works were guaranteed to suppliers in specific states and these placed big burdens on the contractors. Instead of completing the work and benefiting from completing the rollout faster, the contractors were stuck doing paperwork and were mired in disputes with NBN over bill costs.
In contrast, under the current model, at least two or three delivery partners in each state must compete with each other for each parcel of work based on their past performance. So there's a strong incentive to meet budget and quality targets because that delivers a greater share of future work for the contractors. And it's one of the reasons why the NBN has been able to ramp up construction and expand the network footprint so rapidly.
In the same way that NBN has boosted productivity in construction, attention has now turned to the ‘connect' and ‘operate' elements of the network. Some of the processes underpinning NBN as a network operator are still maturing, and we can certainly see that in reports and issues from households and businesses. On the upside, consumers have more choice than ever before between retailers and the types of plans that they offer. And the mandatory migration of fixed line services does mean that households will have to transition to NBN. In all cases, new modems are needed to connect to NBN and for many residences in the HFC cable areas, a physical connection has to be built from the street to their home.
So, in such a complex supply chain, the interaction with consumers and businesses needs to be very tightly managed and regrettably this hasn't always been the case. This isn't something that the NBN can tackle alone and I'm very pleased that joint industry effort is making headway. Earlier this week I convened a meeting with all the telco CEOs, the retailers and also NBN to get an update from them as to how this work is going. The particular focus right now is issues of handballing complaints, lead times for connections and rescheduling appointments.
Better processes are beginning to take root. For its part, NBN is working hard to shift the dial on connections completed ‘right the first time' from just below 90% to up to 95% this financial year. In parallel to that, my department, the ACCC and ACMA are also working to ensure that we've got the right regulatory framework in place to make sure that the industry does deliver for consumers. We're also reviewing the consumer safeguards to make sure that they're suitable for the post NBN environment. And we have some legislation currently before Parliament to establish legislation that NBN and, in certain circumstances, other telcos, have to provide access to high speed broadband regardless of where people live. The package also includes a mechanism called the Regional Broadband Scheme, which will make sure that there is security of funding in the future for the non-profitable parts of NBN's business particularly for satellite and fixed wireless customers in regional Australia.
Now, the second focus for today, that being 5G, Andrew gave a sensational presentation before, and I think Andrew if your enthusiasm can be bottled there's no end to the possibilities as to what 5G can achieve for Australia. And this is really where Government comes in. NBN. As you know is a government venture, from beginning to end. A bit like the original rollout of the fixed line network through the PMG and Telecom. Australia's mobile networks in comparison have grown organically and commercially with virtually no government intervention. It's a very stark contrast.
So, Andrew's given us a good feel for the potential that 5G can unlock and how it's different to 3G and 4G. I think we all know Australians have a voracious appetite for mobile technologies. We have upwards of 32 million connections in Australia. And mobile services are available to 99% of the population. Australia, we're the top performer out of 134 countries on the GSM Association's global mobile productivity index. We're great on coverage. Great on affordability. Great on consumer readiness. And great on availability of content and services.
And as Andrew pointed out, whereas shifting from 1G to 2G, 2G to 3G and 3G to 4G has essentially been incremental change, the change from 4G to 5G will be dramatic. It promises much more than fast data speeds. It also offers lower latency, with signal speeds under 1 millisecond which is important for applications like collision detection in autonomous vehicles. 5G also will allow millions and millions of devices operating together, connected, through the ‘internet of things'. And this provides opportunities for manufacturing, agriculture and improved traffic management.
So, that's why, today I'm launching a paper entitled ‘5G: Enabling the future economy'. The paper outlines four things that the government is undertaking to support the development of 5G in Australia.
The first, we want to make sure that spectrum is available in a timely manner. And the spectrum that carries the most interest for 5G is the 3.6 GHz band. And ACMA has already commenced work to commence the auction for this spectrum next year.
Second, we are engaging in the international standards process to make sure we're all in accord and harmony with what's been done around the world.
Thirdly, we want to pursue streamlined arrangements to allow carriers to deploy infrastructure faster and at less cost. And this is really important because 5G network deployments will be very different in terms of their infrastructure requirements compared to what has gone on before. There'll be a greater proliferation of small cells and more densely located antennas.
We currently have a consultation paper out here on potential changes to what's called the ‘carrier powers and immunities'. These are the rules that essentially determine what carriers can and can't do without having to go through the local government planning processes which is there for high impact infrastructure. But there's a balance that we need to strike between making sure that communities have input and aren't needlessly disrupted and at the same time making sure the carriers keep rolling things out fast and at low cost.
Fourthly, we're going to review and streamline regulatory arrangements so that they're fit for purpose.
We're also going to establish a 5G working group. That doesn't sound exciting but it's important. Which is really a forum for an ongoing dialogue between government, between telcos and between business. Because what we have to do is make sure that we set up the right regulatory framework. But we also have to make sure that across portfolios government isn't lagging in terms of decisions that it needs to take in order to enable the new applications to flourish.
So, I guess in conclusion, I'd describe our job in government as that of an enabler. And with the NBN and mobile and 5G you have a study in contrasts.
For NBN, due to the decisions of the previous government, it's to build a network, one on which businesses and families can expand their horizons. And from a false start under our predecessors, we are on track.
For 5G, our role as an enabler is to set the regulatory preconditions for what will be one of the underpinnings for the fourth industrial revolution. To make sure that there are no impediments so the telcos and businesses can do what they do commercially and organically. Again, when it comes to 5G, we are on track.
Thank you for the opportunity to talk to you today, to bust some myths about the NBN, and also to give you some confidence that we are looking forward as a Government and that we are in a good position to make sure that we can all realise the benefits of 5G as we look forward to what is often described as the fourth industrial revolution.
* Informa Telecoms & Media Limited, Subscriber Household penetration, available at https://wbis.informatm.com:443/wbis/drilldowns/broadband/subscribers/Q4/2015/to/Q3/2017/region-country-operator-technology-network type/ and ITU Statistics, “Fixed (wired)-broadband subscriptions by region 2012 – 2017”, available at http://www.itu.int/en/ITU-D/Statistics/Pages/stat/default.aspx