Submission to the inquiry into availability and access to

enabling communications infrastructure in Australia's

external territories

About Vocus

Vocus is an Australian-owned specialist fibre and network solutions provider and is the preeminent provider of submarine cable infrastructure in Australia and the Pacific region. Vocus is currently engaged by the Australian Infrastructure Financing Facility for the Pacific (AIFFP) regarding a proposed submarine cable from Australia to Timor Leste1. In 2019, Vocus completed

the 4,700km Coral Sea Cable System from Sydney to Papua New Guinea and the Solomon Islands on behalf of the Australian Government. In 2018, Vocus completed the 4,600km Australia Singapore Cable (ASC) from Perth to Singapore via Jakarta and Christmas Island – the first and only submarine cable connecting this external territory. In 2016, Vocus completed the

2,000km North West Cable System (NWCS) from Darwin to Port Hedland, the first and only cable system providing connectivity to offshore oil and gas operators in Australia’s north-west.

Vocus provides this submission with input from Hawaiki, a submarine cable operator described below. Vocus purchases capacity on Hawaiki’s cable, and Hawaiki’s input can be found in the relevant section on Norfolk Island.

About Hawaiki

Hawaiki Submarine Cable LP, headquartered in Auckland, New Zealand, owns and operates the

Hawaiki submarine cable system (Hawaiki). Hawaiki is the first and only carrier-neutral submarine cable linking Australia, New Zealand, Hawaii and Oregon, on the U.S. west coast. Hawaiki has included a design dedicated to connecting the Pacific Islands in order to bridge the digital divide with these nations and connect them directly to the strategic regional hubs of Australia,

New Zealand and USA. As such, American Samoa is connected to the Hawaiki Cable since 2018 providing cost-effective & high-speed connectivity.

Terms of Reference

The Committee will inquire into and report on enabling communications infrastructure in Australia's external territories, including:

• the availability of, and access to communications technologies and infrastructure in each of the external territories; • future opportunities in enabling communications technologies and infrastructure in each

of the external territories including telecommunications services, submarine cables, satellite capabilities; • opportunities and barriers arising from current and potential future communications

infrastructure in each of the external territories; • examining the economic benefits of improving the availability of, and access to communications infrastructure in each of the external territories; and • recommendations for any future communications technologies and infrastructure for

each of the external territories.

1 https://www.aiffp.gov.au/projects

1

Executive Summary Vocus, Australia’s specialist fibre and network solutions provider, is currently engaged in numerous opportunities to deploy submarine cables in the Indo-Pacific region which could be extended to Australia’s external territories at incremental cost – providing high-speed, high- capacity, and low-cost broadband to these currently under-served locations. Norfolk Island, Christmas Island and the Cocos (Keeling) Islands have the potential to play an important role in Australia’s connections to the broader Indo-Pacific region. Representing Australia’s easternmost and westernmost presence in the Pacific and Indian Oceans, these external territories are ideally situated to connect the Australian mainland to our Pacific and Indian Ocean neighbours via high-capacity submarine cable – while also providing a step- change to the connectivity available to residents, businesses, and Government agencies on these Islands. Today, connectivity to Australia’s external territories of Norfolk Island and the Cocos (Keeling) Islands is limited solely to satellite, which is a relatively low-bandwidth and high-cost technology compared to fibre optic cable. Fixed-line and mobile networks on Norfolk Island have the potential to offer mainland-comparable services and prices – but are ultimately limited by the ‘bottleneck’ of satellite backhaul when these terrestrial networks are required to connect to the world beyond their shores. In contrast, Christmas Island is connected via a dedicated spur on Vocus’ Australia Singapore Cable, providing secure, high-bandwidth fibre connectivity which has allowed residents, businesses, and Government agencies to access telecoms services comparable to those available on mainland Australia. We believe that our commercial and technical experience connecting the territory of Christmas Island is highly relevant to the Committee’s line of inquiry and have made a number of recommendations that we believe, if implemented, will better position other territories to make the most of future opportunities for subsea connections in the future. Vocus would welcome the opportunity to appear before the Committee.

Norfolk Island The availability of, and access to communications technologies and infrastructure While Norfolk Island residents have access to broadband via NBN’s Sky Muster satellites, the island also has an established fibre optic cable network, ADSL network, and 4G mobile network. While this terrestrial infrastructure would normally be utilised to provide high-speed broadband, it is ultimately hampered by the requirement to use satellite for backhaul – as a result, NBN Sky Muster services are used rather than terrestrial infrastructure. A chain is only as strong as its weakest link – in this case, satellite backhaul. This issue was pointed out in a submission to the NBN Joint Standing Committee in 2017: “Norfolk Island has an extensive underground fibre network (FTTN) that was funded by the Australian Government as part of the Networking the Nation (NTN) program, a precursor to the NBN, at a cost of $774K in 20032. Fibre extends throughout the island with direct links to the hospital, mobile base stations, cable landing station, radio station, telecom exchange, council chambers, admin buildings, school and airport. In addition, 100% of premises are connected to the island’s copper fixed-line.”3 Without a submarine fibre cable to connect Norfolk Island to the rest of the world, these existing fibre and copper network assets are underutilised due to the network bottleneck created by satellite.

2 Department of Communications, Information Technology and the Arts Annual Report 2002-03, p215 3 Mr Benjamin Howard Submission to the Joint Standing Committee on the NBN, March 2017

2

NBN Sky Muster satellite spot beams to Australia’s external territories4 Future opportunities in enabling communications technologies and infrastructure Two current opportunities exist to provide direct submarine cable connectivity to Norfolk Island which would provide vastly more capacity and alleviate this satellite bottleneck. Given the high costs involved in deployment and Norfolk Island’s small population, neither of these options would be commercially viable in their own right and would require Government support to establish. First, the existing 15,000km Hawaiki cable which connects Australia, New Zealand, American Samoa, Hawaii and the US West Coast could be utilised to connect Norfolk Island. The Hawaiki cable, activated in 2018, was designed with four ‘branching units’ to provide optionality for future connections to New Caledonia, Fiji, Tonga, and American Samoa (which has been connected since 2018). The branching unit to New Caledonia would provide the opportunity to install a new branching unit and additional spur to Norfolk Island – though this unique opportunity to connect Norfolk to an existing cable would require confirmation before Hawaiki builds the branch to New Caledonia.

The existing Hawaiki cable route

4 Source https://birrraus.com/2016/06/05/what-are-sky-muster-spot-beams/ 3

Hawaiki has already completed a survey and feasibility study for the Norfolk connection. The best location for the Norfolk branch landing is Anson Bay where a cable landing station already exists. The submarine cable portion of the branch would be ~400km long and the land cable route would be less than 1km long. As described above, the Norfolk Branch would be connected to the Hawaiki Cable via a branching unit on the New Caledonia branch as presented in the conceptual picture below:

Potential branch to Norfolk Island There are 2 key considerations when building a submarine cable: the build of the cable, and access to capacity. Because access to funds in the long-term may be challenging for Norfolk, a ‘bundled’ cost including both cable build and capacity is proposed, allowing Norfolk to reap the real benefits of a submarine cable. The cost of construction of the Norfolk branch including the capacity is estimated to be ~US$27m. This includes a full fibre pair on the branch, mobilisation of cable lay vessels specifically for the Norfolk branch lay, plus Indefeasible Right of Use (IRU) for capacity on the Hawaiki cable to connect to Sydney. If the timing of the branch construction is synchronised with the roll out of other Hawaiki branches, significant savings (in the order of millions of dollars) may be made on the cost. The connectivity of Norfolk to the Hawaiki cable has the clear advantage of relying on an existing and operational submarine cable and therefore removing all risks associated to new submarine cable build, specifically any completion and/or construction risk, where the project may not be completed due to financial or technical difficulties. The only constraint is the timing: a decision would need to be taken before New Caledonia builds their branch. Once the New Caledonia branch design is finalised (expected Q2 2021), there will be no future opportunities to connect Norfolk Island to the Hawaiki cable. Second, in July 2020, the Chilean Government announced plans for a submarine cable between Chile and Australia (and on to Asia) known as the Asia-South America Digital Gateway (ASADG)5. The proposed 13,200km cable would incorporate five landing locations: Valparaiso [Chile]; Juan Fernandez Islands [Chile]; Easter Island [Chile]; Auckland [New Zealand]; and Sydney [Australia]. The cable system is proposed to include 16 to 18 fibre pairs, providing 270 Terabits (Tb) of bandwidth.

5 https://www.mtt.gob.cl/archivos/25891 (Translation required) 4

Asia-South America Digital Gateway indicative route6 The ASADG project provides a rare opportunity to establish a submarine cable connection to Norfolk Island. Vocus estimates that a connection to Norfolk Island as part of the ASADG initiative would cost ~US$23.2 million, based on the assumption of 583km of cable to be manufactured and installed as a spur from the main ‘trunk’ cable. A spur from the ASADG cable would cost approximately one-third as much as a stand-alone cable from Sydney to Norfolk Island, estimated at ~US$74.9 million for 1,700km of cable. This estimate is based on the current indicative ASADG route and does not assume any adjustment to the main cable, which could potentially reduce the length, and cost, of the spur to Norfolk Island.

Potential spurs from ASADG cable to Lord Howe Island and Norfolk Island Vocus has also briefed the NSW Government regarding a potential spur to Lord Howe Island, which falls under the jurisdiction of the NSW Minister for the Environment. A funding decision for ASADG is scheduled for Q2 2021, with project completion due in Q4 2023. Once cable design has been finalised, there will be no future opportunities to connect Norfolk Island as part of this project.

6 Source: https://wfnstrategies.com/portfolio-items/asia-south-america-digital-gateway/ 5

Comparison of potential Norfolk Island spurs from ASADG (dotted blue) and Hawaiki (green) Cocos (Keeling) Islands The availability of, and access to communications technologies and infrastructure The Coco (Keeling) Islands represent Australia’s westernmost territorial presence in the Indian Ocean and are poised to play an increasingly important role in Australia’s regional Defence interests. Historically, the Cocos (Keeling) islands have been pivotal to Australia’s international connectivity, being home to a cable landing station for the international telegraph cable which connected Australia to the world during the First World War7. Yet despite the strategic importance and historical role played by this territory, communications today are limited solely to low-bandwidth satellite services. In its May 2018 report on the strategic importance of Australia’s Indian Ocean Territories inquiry, the Joint Standing Committee on the National Capital and External Territories recommended “that the Australian Government consider increased Defence and Border Protection activities… on Christmas Island and the Cocos (Keeling) Islands to demonstrate Australia’s commitment to the islands.” The Government response noted that “The Australian Government has increased the Department of Defence and Department of Home Affairs’ presence in the vicinity of Christmas Island and the Cocos (Keeling) Islands in recent years.”8 The 2016 Defence White Paper also stated that “The Indian Ocean has become an important focus for Australian strategic policy in recent years,”9 and in January 2020 the Government announced a $184 million project to upgrade the Islands’ airport runway to support the P-8A Poseidon Maritime Surveillance and Response aircraft, and other aircraft operations10.

7 From Australia to Zimmermann: A Brief History of Cable Telegraphy during World War One 8 Australian Government response to the Joint Standing Committee on the National Capital and External Territories report: The strategic importance of Australia's Indian Ocean Territories - May 2018 9 2016 Defence White Paper, p61 10 https://www.minister.defence.gov.au/minister/melissa-price/media-releases/contract-awarded-cocos-keeling- islands-runway-upgrade 6 Future opportunities in enabling communications technologies and infrastructure

Proposed ASC extension from Christmas Island to the Cocos (Keeling) Islands, and beyond Vocus proposes that the Cocos (Keeling) Islands have the potential to act as a cable hub for the Indian Ocean, providing a diverse route to strategically important nations like India as well as other countries in the area. Vocus’ Australia Singapore Cable connection to Christmas Island would provide the closest and most cost-effective connection point for a new cable to the Cocos (Keeling) islands, providing a direct route from the Australian mainland to these two external territories (and potentially on to other strategically important locations). Christmas Island The availability of, and access to communications technologies and infrastructure Christmas Island is unique among Australia’s external territories in that it has a direct submarine cable connection to the mainland via a spur to Vocus’ Australia Singapore Cable. Despite having access to this high-bandwidth cable, development of on-island communications infrastructure has been relatively limited, albeit with some positive local success stories. Christmas Island’s original mobile network is limited to 2G, a largely obsolete technology which was shut down on mainland Australia in 2016 in preference for 3G and 4G (and more recently, 5G). The arrival of NBN Sky Muster satellite broadband has meant that terrestrial networks have not been upgraded for many years and only offer basic telephony services, and the Sky Muster service is often affected by inclement weather. However, one provider, CiFi (Christmas Island Fibre Internet), has been successful in providing improved services to residents and businesses on the island using the ASC connection. CiFi has provided a free local Wi-Fi network in Flying Fish Cove, for which Vocus provides free capacity on ASC. Additionally, CiFi now offers 4G LTE mobile and fixed wireless data connectivity and is working to expand the reach of its network, relying on ASC for connectivity back to the mainland. CiFi has noted that a lack of tower infrastructure has slowed its ability to expand the reach of its fixed wireless network, which requires a clear line of sight to each customer’s premises.

7 Vocus’ ASC cable allows for Christmas Island to have communications services comparable to metropolitan connections on mainland Australia, but this cable is relatively under-utilised due to the limited-capacity 2G network and the use of NBN’s Sky Muster satellite rather than fixed-line broadband. Given the lack of commercial drivers for private investment in these networks (CiFi’s networks being the exception), Vocus recommends that Government should allocate funding (potentially via programs such as the Regional Connectivity Program) to upgrade on- Island infrastructure, leveraging ASC. Opportunities and barriers arising from current and potential future communications infrastructure Vocus’ experience in establishing the first and only submarine cable connection to Christmas Island has highlighted a substantial barrier to infrastructure investment for Australia’s external territories. Vocus completed the 4,600km Australia Singapore Cable (ASC) in 2018, stretching from Perth to Singapore via Jakarta and Christmas Island. This A$170m project saw Vocus take on significant financial risk, particularly in regard to the Christmas Island spur which enabled Vocus to offer services to a very small number of customers, predominantly Government agencies and a small local population. Complexities in gauging demand Gauging demand within a territory is a significant challenge for the developer of submarine cable. While Government service delivery is the major beneficiary of a cable investment and the largest expected user, Government agencies lack purchasing coordination to attract investors. Government also has the opportunity to leverage private investment by contributing a fraction of the cost of a system in order to attract a connection when a cable is being developed that will pass within close proximity of a territory, however there is no apparent Government agency that has the mandate or funding to coordinate, facilitate or make such an investment. Vocus recommends Government expand the remit of the Department of Infrastructure, Transport, Regional Development and Communications to facilitate coordination of Government telecommunications purchasing in order to attract cable investment. Vocus recommends Government set aside Grant funding to be used to attract cable investment. Access and Price Regulation Given Christmas Island’s status as an Australian external territory, the ACCC decided that the connection fell within the scope of the Domestic Transmission Capacity Service (DTCS) service description and would therefore be subject to access and price regulation11. Vocus argues that telecommunications services to Australia’s external territories should not be subject to access and price regulation as this creates a significant disincentive to invest in critical infrastructure. If such services are regulated, then pricing should not be set so low as to further disincentivise investment. As Vocus put in a response to an ACCC DTCS inquiry12: “A project to build a long-distance international subsea telecommunications cable involves significant commercial and technical risk. Subsea cable projects are long-term capital-intensive infrastructure projects. Investors face considerable uncertainties. The risks include: • completion or construction risk, where the project may not complete due to financial or technical difficulties; • jurisdiction regulatory risk, arising from different regulatory regimes existing, and subject to change, in the countries where the network is installed;

11 https://www.accc.gov.au/public-registers/telecommunications-registers/s152bdn-binding-rules-of-conduct- register/christmas-island-binding-rules-of-conduct-vocus 12 https://www.accc.gov.au/system/files/Vocus%20– %20submission%20to%20the%20DTCS%20declaration%20discussion%20paper%20–%20April%202018.pdf 8 • financial risk, arising from the need to raise significant funding and from fluctuations in capital markets over the long timeframes of the project; • demand risk, as there may not be sufficient buyers of the capacity on the network; and • pricing risk, as the pricing on the route is not constant and generally decreases over time. Given these risks, Vocus considers that in conducting its LTIE (Long Term Interest of End Users) Test analysis the ACCC should give considerable weight to the objective of encouraging investment in a submarine cable infrastructure project.” In the case that these services to external territories continue to be subject to price regulation, Vocus argues that prices should be set at a level which does not disincentivise further investment. In October 2018, Vocus requested that the ACCC make binding rules of conduct (BROC) setting the terms of access for a transmission service between Perth and Christmas Island over ASC. In December 2018, the ACCC made a BROC which priced services with an uplift of 360% on the existing regulated price. This pricing was significantly below the uplift supported by Vocus’ modelling, which used data of Vocus’ actual costs, business rules, and demand forecasts. Vocus considers that the prices set by the BROC were materially below its efficient costs of providing the service, including a normal commercial return.13 The ACCC later confirmed an increased regulated price uplift from 360% to 470% in its DTCS final access determination report in October 2020.14 While the ACCC’s decision to increase the price uplift was welcome, Vocus argues that access and price regulation of communications infrastructure to external territories will continue to create a disincentive for investment. Infrastructure investors are less likely to deploy new connections to Norfolk Island and the Cocos (Keeling) Islands if they expect to be subject to the same price regulation as Vocus has experienced on its Christmas Island cable spur. Vocus calls on the Committee to ensure that policy settings concerning Australia’s external territories are designed to encourage investment in infrastructure. Specifically, Vocus recommends that the Government excludes services to Australia’s external territories from the scope of access regulation as they are typically connected as part of international, rather than domestic, telecommunications infrastructure. Conclusion & Recommendations Vocus welcomes the Committee’s inquiry into communications in Australia’s external territories. The inquiry is particularly timely given the broader geo-political environment in the Indo-pacific region, and the opportunity for these external territories to play a greater role in Australia’s connectivity with our regional neighbours. 1. Vocus recommends Government investigate the feasibility of a submarine cable connection to Norfolk Island, leveraging one of the current opportunities to connect this territory via an existing or planned cable such as Hawaiki or ASADG. 2. Vocus recommends Government investigate the feasibility of a submarine cable extension from Christmas Island to the Cocos (Keeling) Islands. This feasibility study should consider the benefits of improved connectivity for Australia’s Defence facilities on the Islands, as well as the opportunity to use this location as a cable hub for strategically important locations in the Indian Ocean. 3. Vocus recommends Government expand the remit of the Department of Infrastructure, Transport, Regional Development and Communications to facilitate coordination of Government telecommunications purchasing in order to attract cable investment. 4. Vocus recommends Government set aside Grant funding to be used to attract cable investment.

13 Vocus response to ACCC Domestic transmission capacity service final access determination inquiry 2019 14 ACCC DTCS final access determination inquiry 2019-2020 9 5. Vocus recommends Government allocate funding to improve residential and business communications on Christmas Island, particularly the deployment of a 4G/5G network, which could better leverage Vocus’ ASC infrastructure to deliver vast improvements to bandwidth and latency over existing satellite services. 6. Finally, Vocus calls on the Committee to ensure that policy settings concerning Australia’s external territories are designed to encourage infrastructure investment. Specifically, Vocus recommends that the Government excludes services to Australia’s external territories from the scope of access regulation as they are typically connected as part of international, rather than domestic, telecommunications infrastructure. ______Please direct any questions regarding this submission to: Luke Coleman Head of Government and Corporate Affairs 27 January 2021

10