Annual Report 2013–14 Contents Page About NBN Co 4 NBN Co Objectives 6 Chairman’s Message 10 Chief Executive Officer’s Message 12 Executive Team 16 Delivering on the Strategic Goals by 2020 18 Directors’ Report 22 Corporate Governance Statement 64 Auditor’s Independence Declaration 76 Financial Statements 77 Statement of Profit or Loss and Other Comprehensive Income 78 Statement of Financial Position 79 Statement of Changes in Equity 80 Statement of Cash Flows 81 Notes to the Financial Statements 82 Directors’ Declaration 132 Independent Auditor’s Report 133 Regulatory Reporting Requirements Index 135 Regulatory Reporting Requirements 136 Glossary of Terms 141 The financial statements were authorised for issue by the Directors on 14 August 2014. The directors have the power to amend and reissue the financial statements. Legal Notice Copyright Copyright © NBN Co Limited 2014. Copyright subsists in this Annual Report. NBN Co owns that copyright. Other than as permitted under the Copyright Act 1968 (Cth), the Annual Report (in part or as a whole) cannot be reproduced, published, communicated or adapted without the prior written consent of NBN Co. Any request or inquiry to so use the Annual Report should be addressed to: The Chief Financial Officer NBN Co Limited Level 11, 100 Arthur Street North Sydney NSW 2060 Australia Date This Annual Report is dated 30 June 2014. Glossary Defined terms within this Annual Report should be read in conjunction with the Glossary of Terms on pages 141 to 144. About NBN Co NBN Co Limited is a Company owned by the Commonwealth of Australia that aims to ensure all Australians can access very fast broadband as soon as possible, at affordable prices and at least cost to taxpayers. To achieve this objective, NBN Co is building and operating Australia’s largest national infrastructure project, the National Broadband Network or NBN. The NBN is being built in a cost-effective manner using the technology best matched to each area of the continent. It has also been established as a wholesale-only access network, available on equal terms to all retail telecommunications providers. This is intended to level the playing field for Australian telecommunications and create real and vibrant competition within the industry. Established in 2009, NBN Co is a Government Business Enterprise (GBE) incorporated under the Corporations Act 2001. Operated before 1 July 2014 under the Commonwealth Authorities and Companies Act 1997 (CAC Act), and from 1 July 2014 under the Public Governance, Performance and Accountability Act 2013 (PGPA Act). Certain provisions of the CAC Act will also apply for a transitional period. 5 About NBN Co | NBN Co 2014 Annual Report 6 NBN Co 2014 Annual Report | NBN Co Objectives NBN Co Objectives NBN Co’s objectives are set by the Shareholder Ministers in a document referred to as a Statement of Expectations (SoE), which is supplemented from time to time by policy directives and correspondence. NBN Co’s current objectives are set out in the 8 April 2014 SoE, which outlines the Government’s commitment to complete the NBN and ensure all Australians can access very fast broadband as soon as possible, at affordable prices and at least cost to taxpayers. NBN Co’s overriding objective is to fulfil this commitment. NBN Co Objectives The SoE provides NBN Co with flexibility and • Be guided by the following goals: discretion in operational, technology and avoid service disruption for consumers; network design decisions, within the constraints minimise uncertainty and disruption for of a public equity capital limit of $29.5 billion. construction partners; and achieve rollout objectives as cost-effectively and seamlessly It is intended that the NBN will be available on as possible during the transition to the equivalent terms to all Access Seekers and OMTM 8 NBN Co’s direct customers (being Retail Service Providers (RSPs) and will operate at the • Determine which technologies are used on lowest practical level in the network stack. The an area-by-area basis, to minimise peak use of NBN Co’s network by RSPs is intended funding, optimise economic returns and to deliver very fast broadband to enhance the Company’s viability the Australian community. • Provide download data rates (and The Government expects that completing the proportionate upload rates) of at least NBN will result in the structural separation 25 Megabits per second (Mbps*) to all of Telstra; and a competitive market for retail Premises and at least 50 Mbps* to broadband and telephony services. 90 per cent of fixed-line Premises as soon as possible In implementing the Government’s policy as stated in the SoE, NBN Co’s objectives are to: • Ensure upgrade paths are available as required • Transition from a primarily Fibre-To-The- Premises (FTTP) model to the Optimised • Prioritise areas identified as poorly served Multi-Technology Mix (OMTM) model by the ‘Broadband Availability and Quality outlined in NBN Co’s Strategic Review1 Report’ published by the Department of report of 12 December 2013 as Scenario 6 Communications in February 2014, to the extent this is commercially and operationally feasible 1 Strategic Review – December 2013 http://www.nbnco.com.au/content/dam/nbnco/documents/NBN-Co-Strategic-Review-Report.pdf * The NBN is being designed to provide these speeds to our Service Providers. End-User experience, including the speeds actually achieved over the NBN depends on the technology over which services are delivered to Premises and some factors outside our control like End-User equipment quality, software and retail broadband plans and how the Service Provider designs its network. NBN Co 2014 Annual Report | NBN Co Objectives • Ensure the business rules established • Monitor the capabilities required to to determine which technology is used implement an OMTM broadband network, in each locality are transparent to the and ensure alignment between these community, and periodically updated capabilities and the Company’s personnel to reflect technological and commercial developments • Operate in an appropriately transparent manner by delivering weekly online reports 9 • Integrate existing Hybrid Fibre Coaxial (HFC) of network deployment and active services; networks into the rollout where this is monthly reports to Shareholder Ministers; feasible and economically beneficial, and quarterly management briefings for and operate these on a wholesale-only, stakeholders and the media open-access basis • Prepare annual Corporate Plans for • Trial Fibre-To-The-x (FTTx) network consideration by Government and architectures to inform the Company’s subsequent public release planning and decisions • Take proportionate responsibility for the quality, consistency and continuity of service experienced by RSPs and their End-Users • Contribute leadership and resources to the industry-wide challenge of migrating services to the NBN NBN Co Objectives | NBN Co 2014 Annual Report Chairman’s Message The past year has been a period of enormous the OMTM as outlined in Scenario 6 of the change and transformation at NBN Co. This Strategic Review. transformation is having a positive impact on NBN Co has now well and truly begun the the rollout of the National Broadband Network. transition to the OMTM, with work underway The intent of the NBN remains the same: in the areas of regulatory change, product to provide ubiquitous access to high-speed development, IT systems updates, planning 10 broadband to all Australians in a timely and design. We are also renegotiating our and cost-effective manner using platform agreements with Telstra and Optus to access technologies that provide upgrade paths the copper and HFC networks. as required. The challenge of constructing a national A fit-for-purpose national network will provide telecommunications network for the Australian the environment to drive productivity, stimulate continent from scratch is formidable, and innovation and competition, and help underpin grievously tested the capabilities and resources the competitiveness of our companies and the of the organisation in its early years. Success quality of life for our citizens. requires partnership with all players in the telecommunications industry – incumbent The change of Government in September 2013 telcos, construction companies, vendors, RSPs meant a change of direction for the Company, and close working relationships with regulators starting on 24 September with the release of an and other stakeholders. Interim Statement of Expectation (SoE). This document set out a more cost-effective The early months of the new NBN Co leadership approach to the rollout that would ensure all have seen considerable effort directed at Australians could access very fast broadband developing our stakeholder relations, settling as soon and as affordably as possible. legacy disputes, improving our shared The release of the Interim SoE was closely processes, and engaging a more strategic, followed by the NBN Co Strategic Review1 – a longer-term level with our partners. This must comprehensive, robust and thorough analysis translate to sharp improvements in the of all the operational, financial and performance engineering works and network rollout, and metrics of the Company, giving the Board and the productivity of the project. Executive the tools necessary to make critical Our Shareholders have also requested, and decisions about the future direction of the rollout. we have delivered, a far higher standard of The Strategic Review found that the fastest information transparency on