MICHELLE ROWLAND MP
SHADOW MINISTER FOR COMMUNICATIONS
MEMBER FOR GREENWAY
ADDRESS TO COMMSDAY SUMMIT 2021
SYDNEY
WEDNESDAY, 5 MAY 2021
*** CHECK AGAINST DELIVERY ***
I acknowledge the traditional owners of the land on which we meet and pay my respects to their Elders past, present and emerging.
Introduction
The last time I addressed a Communications Day event in person was October 2019.
Since then, unprecedented bushfires, a global health pandemic, and widespread flooding have tested the resilience of the telecommunications industry, and the sector’s response deserves the utmost praise.
So I begin by acknowledging the professionalism and responsiveness of the sector throughout this challenging period, in particular Telstra, NBNCo, Optus and TPG-Vodafone.
Thank you for your engagement with me personally, as Shadow Minister, and with Labor over the past 12 months.
Australia is fortunate to have a sector which takes its responsibilities to the community so seriously, and it’s a credit to your leadership and front-line workforce that this is the case.
I also want to pay tribute to the media, including the industry media that is here today. The Fourth Estate is important at all times, but no more so than during a pandemic.
Indeed, the Communications Portfolio on the whole has been critical to keeping the country functioning throughout the disruption of the past 18 months.
Consider the institutions it contains.
NBNCo.
Australia Post.
The ABC.
The SBS.
Individually, and collectively, these entities service every household in Australia on a constant, daily basis.
That is what I’ve long believed makes the portfolio so special.
Commonwealth entities delivering essential services to the Australian community that the private sector, left to their own devices, would not provide to an acceptable quality.
While their precise definitions, funding sources, objectives and degrees of independence from government vary, these entities have one thing in common: every dollar they spend is taxpayers’ money.
And while we don’t need research studies to convince us of the importance of the comms sector, very few reports have looked at the governance side of things.
At all times we need best practice governance and efficient management of Commonwealth resources.
But no more so than when faced with disruption, be it productive or, in some cases, unproductive.
And there is no shortage of disruption on the radar, whether it be related to extreme weather events, COVID-19 pandemic, recession, increasing geopolitical tensions or the relentless pace of technological innovation.
Unfortunately some of the disruption experienced by key portfolio entities has been self-inflicted and detrimental.
It has been a tumultuous six or so months in the Communications Portfolio, given the slippage in good governance by key entities.
We learned that inside one Government Business Enterprise four $5,000 watches had been purchased in 2018 as executive bonuses.
And in the other Government Business Enterprise, the forecast cost of the project rollout had ballooned by $9.4 billion since 2018.
In terms of the former, the Government hired a law firm to investigate, instructed the Chair to stand the CEO down, and had the Prime Minister issue a provocative ultimatum on the floor of Parliament.
In terms of the latter, the Minister for Communications stood up at the National Press Club, and declared his now $57 billion technological NBN misadventure to be a hallmark of “prudence” and “efficiency”.
And that same Minister, last year, addressed this forum talking about Soviet tractors and yesterday spent half his speech criticising Labor’s FTTP NBN and the other half talking about how he is slowly going to replicate it.
Such is the paradox of modern politics.
I am not presenting these examples to make a trivial point, because these matters are serious.
They raise fundamental questions about the governance of public institutions, the misalignment of public expectations with commercial imperatives, and the occasional madness that politics injects into the process.
Originally, the Communications Portfolio was the Postmaster General. But arguably, never in its 200 year history, has Australia Post been placed under such stress.
This is an inflection point that warrants close scrutiny.
In my more recent, virtual, address to the October 2020 CommsDay Summit, by video, I mentioned the need for better leadership and governance as vast sums of taxpayer funds were committed in response to the pandemic and recession.
Today I’d like to expand on the theme of public governance in the Communications Portfolio, given recent events have indicated there are at least three areas requiring urgent attention and improvement:
- First, remuneration and bonuses;
- Second, personnel management; and
- Third, outsourcing and the deskilling of the public service.
These issues deserve more attention because the consequences of poor governance include waste and risk, ultimately borne by Australian taxpayers.
We want the institutions of nation-building to inspire confidence, and not derision.
To find the right balance we need to go beyond making a few tweaks to bonus and gifting guidelines.
We need a more integrated conception and guidance framework for how boards of Commonwealth entities, including commercial boards, have regard to the public character of the entities they oversee.
REMUNERATION
Successful governance and the fusion of public service and commercial culture is a discussion that goes beyond bonuses, but I’ll start on the topic of remuneration.
I’m often asked whether I think we should just do away with bonuses. My response to that is no.
Having come from the private sector, I understand full-well the important role that well designed incentives play in driving performance.
I do believe it’s important for public companies to be vibrant, competitive and efficient, and I do believe it makes sense for remuneration structures to support those objectives.
However, the notion that the success of a government business enterprise hinges on adopting the excesses of corporate culture, is, in my view, both misguided and missing the point.
Working for Australia Post, or the NBN, or the ABC or the SBS is a reward in and of itself. That is the nature of public service and the privilege of opportunity it affords.
These entities are custodians of taxpayers’ money, and are rightly held to a higher standard than their private sector counterparts.
The notion that bonuses should be paid without regard to the public character of the institution, and the contextual restraint that public character requires, is something that needs to be addressed.
There is a balance that Australians expect to be struck, and the board has an important role to play in helping to find that balance.
What is a clear is that the boards of Australia Post and NBNCo have failed their recent tests.
Notably, the Minister for Communications adopted different approaches on the issue of spending restraint depending on the portfolio entity he was dealing with.
While these entities differ in legal character, objectives and funding sources, one would expect consistency from the Minister when it comes to a principled stance on remuneration and bonuses in a recession context.
Unfortunately this was not so.
Firstly, with the ABC, the Minister sent the Managing Director a firmly worded letter, demanding that a scheduled 2 per cent staff wage increase be deferred, then leaked his letter to the media.
The Minister’s letter of May 2020 came after the ABC’s April 2020 decision not to make any bonus payments to senior executives or any salary at-risk payments that financial year, as well as after the ABC Managing Director’s decision to personally decline a 2 per cent pay increase as well as take a 5 per cent salary reduction from April until the end of September.
Second, with Australia Post, testimony currently before the Senate is the Minister made a secret agreement with the Chair to link the bonuses of the senior executive committee to political outcomes in the Senate.
Third, with NBNCo, the Minister basically got out a warm piece of lettuce and waived it at the Chairman.
The Australian Financial Review reported the NBNCo Chairman ignored the Minister, and proceeded to pay out a record $77 million in corporate bonuses during the middle of a recession.
Furthermore, these bonuses were paid at the same time front-line NBN technicians and contractors were having their payment rates reduced through highly questionable and intimidating contracting practices, which culminated in nationwide protests this week.
This provides us with two important insights — the first being into the governance problem at hand, and the second being about the nature of politics.
Firstly, the Government was not confident the Boards of Australia Post and NBNCo could be relied on to exercise the type of financial restraint that would reasonably be desirable under the circumstances.
Presumably this is because there was no guidance requiring such contextual constraint to be exercised.
This begs the question: Is the current PGPA framework adequate? If not, what more could be done to improve this?
It’s also worth noting that in recent events at Australia Post, the gap was not the PGPA framework, but the failure to implement it in company policy.
The key finding of the Maddocks investigation into expenses at Australia Post, that the purchase of watches was inconsistent with the PGPA Act, was in my reading not an adverse finding against Ms Holgate given the same investigation found she did not breach a company rule.
In fact, finding 9 of the report, in referencing this issue, states the purchase was, and I quote:
“inconsistent with the obligation imposed by the PGPA Act on the Board relating to the proper use and management of public resources”
The second insight is there was no consistency in how the Minister for Communications chose to intervene.
In every instance, the mode and manner of his interventions were guided by politics.
In the case of the ABC the Minister wanted to use COVID-19 as an excuse to interfere with ABC independence and publicly intimidate ABC staff who were, at the time, already facing a further round of efficiencies and staffing reductions as a result of Government funding cuts.
In the case of Australia Post he was worried about media commentary, and sought to keep everything out of sight.
In the case of NBNCo he didn’t care because he judged the payment of excessive bonuses might give credibility to the spin that NBN was beating its targets, when it had in fact been concealing cost blowouts, concealing a larger than expected $7.4 billion cash flow loss, and setting misleading revenue targets.
Clearly, relying on ministers to intervene is not going to work because politics compromises their consistency which in turn undermines the independence of Boards.
What we need is an improved guidance framework to ensure Boards are accountable for exercising restraint when common sense would dictate that a public entity should do so.
This can bring about a better alignment between the decision making of Boards and the reasonable expectations of a public entity.
If you are cutting services, or cutting front line jobs, then there should be restraint on bonuses.
If the country is in economic recession, then exercise restraint on bonuses as the community would expect.
I don’t think these are radical propositions.
It’s just common sense that isn’t codified, and therefore Directors don’t feel the need to have regard to such factors.
Over the past twelve months we have seen the Australian Government and Australia Post cut mail delivery frequency in half, end the priority mail service, and seek to end delivery services for perishable goods which regional growers rely on.
All of this was decided upon without consultation.
Does the management overseeing a 200 year old institution really consider it proper to attempt such changes without consultation?
And what Board of a public entity allows its executive to keep repeating this flawed practice?
This is what happens when governance culture loses touch with the public character of the entity it oversees.
It’s not about any “pub test”. It’s not about how things look. It is about consistent and predictable functioning of Commonwealth entities who are custodians of taxpayers money.
We have to do better.
And this is where a modest amount of improvement, in my view, could go a long way.
PERSONNEL
Turning to my second point on governance and personnel management, consider also the need for cool heads to prevail when pressure is brought to bear in relation to the leadership of a Commonwealth entity.
A Senate Inquiry is now on foot into the circumstances leading to the direction by the Minister for Communications to the Chair of Australia Post that the Chief Executive Officer of Australia Post, Ms Christine Holgate, be stood down, with particular reference to the current status of her employment with Australia Post, amongst other things.
A little over two years ago, the same Senate Environment and Communications References Committee inquired into allegations of political interference in the ABC including the termination of the then Managing Director, Ms Michelle Guthrie, amongst other things.
A striking parallel in both cases, established on record, is that neither the Board of Australia Post nor the ABC Board sought or obtained legal advice at the time of deciding to act in relation to their CEO and MD.
In both cases – both extraordinary, high profile events for each entity – neither Board obtained legal advice despite the reasonably foreseeable risk of legal action and costs this might incur.
The PGPA Act imposes a duty of care and diligence, at the standard of a reasonable person, among other things.
A pretty basic expectation.
I do not think it a stretch to expect that, when contemplating action that might affect the rights and reputation of a CEO or MD, that Boards obtain legal advice to inform their actions, uphold due process and mitigate risk and harm to the entity and its personnel – as well as taxpayers.
To quote Nigel Phair in an article on “Why good governance is important in the public sector” published by the Australian Institute of Company Directors:
“When they’re entrusted with the public purse, I like i’s dotted and t’s crossed, and that includes governance”.
OUTSOURCING
On my third point on outsourcing and the deskilling of the Australian Public Service, I want to draw attention to two matters:
Firstly, that it is of increasing concern that certain reform processes in the portfolio are drawn out, ill-conceived or inadequate, all while the consultants reports pile up.
Many in this room will have firsthand experience of a go-nowhere consultation process that wasted time and resources.
Many will have noticed the exorbitant sums paid out to consultants for reports that second guess what the Government wants to hear – far from frank and fearless advice – or that duplicate resources, either within or across Departments and agencies.
The Spectrum Reform process was referred to as “the Canberra equivalent of Hollywood development hell”.
Currently the Government is consulting on the Media Reform Green Paper, for which submissions close in May, having been extended from March.
Part of the Green Paper grapples with a potential second digital dividend while another part considers regional media. On the question of regional media, in the past 18 months the Department has commissioned no less than four consultants reports totalling around $1.5 million, yet the Green Paper manages to miss the mark when it comes to a realistic appraisal of issues and options.
In response to negative backlash about the main consultation paper, the Government is said to be running a further, select, supplementary consultation, within the existing Green Paper consultation, replete with yet another consultant.
It is of real concern that successive cuts to the APS have gone so far they now risk portfolio outcomes and that outsourcing in the name of efficiency is, conversely, leading to delay, duplication and waste.
It is essential that reform and procurement processes in the Communications portfolio are well governed – not least because there is little tolerance for waste, particularly in the context of unemployment and record debt – but because governance failures in this portfolio are of real world consequence for industry and consumers.
The second aspect I’d like to draw attention to in relation to outsourcing is the concomitant need for a firmer grasp on governance as the trend for greater flexibility and agility continues.
Portfolio agencies like the ACMA have outsourced a range of activities under contract for some years – including the Do Not Call Register, Telecommunications Numbering and marine radio operator certification and examination services for example.
Where it is appropriate to outsource a function, or activity, or project, governance, procurement and contract oversight is of greater importance.
The dynamic and evolving ICT environment does and will continue to demand innovation across government departments, agencies and Commonwealth entities.
And if there is any portfolio that needs to be at the forefront of innovation, it is Communications.
To quote from the same AICD article, Dr Robert McKay said that “the governance of any organisation affects its appetite for risk and ability to innovate” and “the more successful government agencies are filled with innovation”.
Calling for good governance in the public sector is not novel.
My concern is that, from the top down, good governance appears to be slipping in the Communications portfolio, to the detriment of an expert, skilled and innovative public service, stable Commonwealth entities and outcomes.
PRICING
Finally, I would like to close by speaking about recent developments in the NBN pricing debate.
There has been ongoing debate about what impact NBN pricing is having on the economics of the industry, and what impact this might have on households and families as wholesale prices rise.
There are legitimate arguments on both sides of this debate.
NBNCo needs revenue to cover its ongoing costs and reinvest in the network.
NBNCo also wants to ensure RSPs are motivated to move consumers onto higher speeds, rather than lower speeds, and I too believe this is important.
For their part, retail providers have seen profit margins reduced, and face rising wholesale costs.
At some stage, this will be passed onto households in the form of higher retail prices.
For almost two years we have seen NBN pricing consultation processes essentially drifting nowhere.
Over that period there have been repeated industry calls to examine removing variable capacity charges and transition to a fixed access price across different speed tiers.
It was disappointing when in March the Senate learned that, despite the latest consultation process, NBNCo has at no point provided flat access price modelling to RSPs.
NBNCo argued they could not do this because, if they did, not all providers would be happy with the model they produce.
With all due respect, the notion that a wholesale operator requires industry-wide support on modelling that nobody has seen, before it will release it for consultation, is, a most unflattering tribute to circular logic.
If the removal of variable capacity charging is a bad idea, then simply release the modelling to retail providers and make the case for why that is so.
Allow the industry to test the arguments and have a genuine debate about the trade-offs.
There is a genuine concern that a reason why this modelling is being withheld is because it would unintentionally reveal what the underlying cost recovery objectives for NBN really are, and this may present an inconvenient conflict with public figures in the Corporate Plan.
There has been for some time an expectation that once the rollout was complete wholesale pricing would become simpler and less complex. Regrettably that has not occurred.
Not only did the NBN pricing announcement last week make pricing more complex, but it appears to financially disadvantage retail providers who churn customers onto 5G networks.
If this is in fact what is happening, it would be reasonable for the ACCC to take close look at what is going on.
It is already problematic that the Minister legislated a broadband tax aimed at limiting competition with the NBN.
But the use of conditional pricing offers to discourage churn is an escalation in how market power is being used.
Why is all this happening?
It’s pretty simple.
We were told by this Government that if it scrapped fibre and instead switched to second-rate technologies, the NBN would be delivered for only $29.5 billion.
Then in 2014 the cost increased to $41 billion.
Then in 2015 it blew out to $49 billion.
By 2018 it had increased to $51 billion.
Then, eight long years later, after buying 50,000 km of new copper — enough to wrap around planet earth — this Government accepted Labor was right in the first place and opted for a backflip to the fibre-to-the-premises model.
The reversals haven’t stopped either.
Just yesterday NBNCo revealed they would need to spend more money to build fibre-lead ins for FTTC premises who order speeds of 250 megabits per second.
This came despite the Minister standing up at the National Press Club in September last year saying the entire FTTC footprint would be gigabit capable through g.fast.
We will need to get more information about what is going on, because this information in isolation makes no sense.
So where does this leave us?
This technological misadventure, otherwise known as the multi-technology mix, is now forecast to cost $57 billion.
$29.5 billion. $41 billion. $49 billion. $51 billion. $57 billion — a proverbial sushi train of cost blowouts.
If your shareholder is willing to tolerate endless cost increases, and you are financially rewarded for meeting fake revenue targets, then clearly your incentive is to keep spending money.
The absence of discipline or accountability for how capital is allocated raises questions about the role of regulatory governance.
The ACCC once deemed a $45 billion fibre to the premises NBN to be prudent expenditure.
In that context, how can an inferior $57 billion multi-technology mix — which will have relatively greater operating costs greater upgrade costs— also be considered prudent?
The recent announcement that the ACCC would take the lead on pricing is a welcome development.
It is of course important that pricing promotes the long-term interest of end users, and position Australia to be a leading digital economy.
We look forward to what will hopefully now be a more meaningful discussion about the best path forward.
ENDS
