NBN Co under Labor was an unrealistic glee club: Turnbull

Under the leadership of former NBN Co CEO Mike Quigley and Labor Communications Ministers Conroy and Albanese, the company charged with rolling out the National Broadband Network (NBN) across Australia created a rigid, hierarchical culture of rules and blame that left it in diabolical shape, Malcolm Turnbull told a Fairfax infrastructure conference on Thursday.

The communications minister said that three weeks after appointing former Telstra CEO Ziggy Switkowski as executive chairman of NBN Co in 2013, Switkowski said the culture was worse than Telstra, and more akin to that found when Telstra was fully government owned and still called Telecom Australia, or even part of the Postmaster-General's Department.

"Now that is not an exaggeration. How that happened, it's one of the most fascinating things I've ever seen in my business career," Turnbull said. "There was a glee club culture there, and of course if you are in the glee club, you can't be a member if you've got bad news.

"This was one of the things that we had to change, and we have changed it now."

Turnbull said it was obvious that NBN Co's projections were overly optimistic and unrealistic, and it was not long before the company was "mugged by reality", citing NBN Co saying prior to the 2013 election that the average cost to connect a premises with fibre was, on average, between AU$2,200 and AU$2,500.

"[It was] completely and utterly untrue, untrue," the minister said. "The real cost ... we've built a lot of this, we've built hundreds and hundreds of thousands of these, so the NBN Co actually knows what it costs to connect premises with fibre -- the real cost is AU$3,600, and that's before you add in another AU$700 for the capitalised cost of the Telstra pits and pipes.

"That's a big delta, a very big delta. How can you get it so wrong? I think a bit part of it was this glee club culture."

In separate comments made to ABC radio on Thursday morning, NBN CEO Bill Morrow confirmed that the company had spent AU$100,000 to drill through 300 metres of rock to connect three houses in Queensland.

"This is what makes part of this complex. Not every home is the same in order to get them connected to a broadband network, and some are going to be very expensive, and others are going to be moderately so," Morrow said.

"This is the vulnerability that we have, that if you take a major adjustment to the plan, it could cost the taxpayers quite a bit of money."

Yesterday, NBN Co announced that it had restructured its contract model to place greater emphasis on contractor performance, and had signed a set of five contracts with Downer, Transfield, Visionstream, Fulton Hogan, and WBHO for deploying the NBN to 4 million premises.

Missing from the list of contractors was Telstra, which said it had decided to remove itself from the tender process based on a "commercial assessment", but Morrow expects the company to gain work in the future.

"We're using them in a variety of different ways, they did participate in the tender process and for the reasons that they choose, they pulled out of it in the end and they are not listed in this round. However, we do expect them to be a part of the build going forward," he said.

"When we looked at the market rates, trying to get the best value for the taxpayers, Telstra felt that that was something that they didn't want to participate any further in, and they pulled out."

Telstra said it is continuing to deliver on the AU$390 million planning and design contract signed with NBN Co late last year to incorporate the use of copper-based technologies in the rollout.

The Australian Competition and Consumer Commission (ACCC) announced on Thursday that it had accepted NBN Co's long-term revenue constraint methodology for the 2013-14 financial year.

"The ACCC is satisfied that NBN Co's proposal meets the expenditure criteria set out in the Special Access Undertaking (SAU)," ACCC Commissioner Cristina Cifuentes said in a statement.

Optus said in its submission (PDF) to the ACCC that the current SAU did not take into account the new so-called multi-technology mix of the NBN -- which uses hybrid fibre-coaxial (HFC), fibre to the node, and fibre to the basement, as well as the existing fibre to the premises -- and instead, the SAU stated that fibre to the premises would be deployed to 93 percent of Australia households. The company also said that NBN's compliance was less rigorous than that imposed on other telcos, and recommended the ACCC make NBN comply with the Telecommunications Industry Regulatory Accounting Framework.