On 11 December 2014, the Government released a framework for the regulatory and structural reform of the telecommunications sector. The paper included a response to the 53 recommendations of the Vertigan panel.

Overview

The Government’s response to the Vertigan reports set out a number of measures that will be implemented between now and the end of 2016.

Wholesale Pricing and Cross-subsidy of Non-Commercial Areas

The Government will replace the uniform national wholesale pricing model with a wholesale price cap for NBN services. The Government has confirmed that price caps will not increase NBN wholesale prices in urban or regional areas above the current levels approved by the ACCC in the SAU. Communications Minister, Malcolm Turnbull, has stated that the price caps will “ensure the price of the NBN cannot rise…but NBN Co can respond to competition.” Removing the uniform price is designed to allow NBN to better compete in markets where there is high competition from private sector carriers. This will give NBN Co scope to reduce pricing in certain markets, such as metropolitan areas.

Currently, NBN Co is required to fund non-commercial areas from cross-subsidies that disadvantage it in commercially attractive areas relative to other carriers. The Department of Communications’ new Bureau of Communications Research will assess the feasibility of replacing the cross-subsidies, which are currently embedded in NBN Co’s wholesale prices, with more transparent funding arrangements at no additional costs to consumers. Contributions will be sourced from owners of high-speed broadband access networks that target residential and small business customers (mainly NBN Co itself). In 2015, the Government will release terms of reference for the assessment of cross-subsidy options.

Review of Competition Regulation

Further, the Government will review the telecommunications-specific anti-competitive conduct regime set out in Part XIB of the Competition and Consumer Act 2010 (CCA). Specifically, the Government will consider whether telecommunications-specific competition concerns have been adequately addressed through other mechanisms, such as the ACCC’s powers to issue binding rules of conduct under Part XIC of the CCA. The Government will also bring forward legislation in 2015 to clarify the ACCC’s ability to regulate facilities through Part XIC and the extent to which it overlaps with the facilities access regime in Schedule 1 of the Telecommunications Act 1997.

The Government will introduce legislation to repeal Part 7 of the Telecommunications Act 1997 with effect from 1 January 2017, on the basis that Part XIC of the CCA is sufficient to deal with access to services. Part 7 requires the owners of private superfast broadband networks built or extended after 2011 to make a layer 2 bitstream service available.

Carrier Licence Condition

On 15 October 2014, the Government released a draft carrier licence condition requiring operators of pre-2011 private superfast broadband networks that supply services to residential customers to provide wholesale access to their networks in response to TPG’s extension of its pre-2011 business-serving networks by less than one kilometre to support a rollout of FTTB in MDUs. The report confirms that the condition will come into effect on 1 January 2015. The condition will require providers of superfast broadband networks that supply services to residential customers to provide a 25/5 mbps bitstream service as a wholesale product and at a maximum price of no more than $27 per month per port. Providers subject to the condition must either operate on a wholesale-only basis or must establish and maintain separate wholesale and retail companies on a basis that does not give the retail company a competitive advantage over wholesale customers.

The carrier licence condition will apply for two years. Subsequent to the introduction of the new carrier licence condition, the Government intends to introduce legislation to remove the exemption in Part 8 of the Telecommunications Act 1997 relied on by TPG that permits the extension of pre-2011 superfast broadband networks by less than one kilometre without the Part 8 wholesale-only rule applying.

In summary, superfast broadband networks built after 2011 that serve residential customers will be subject to Part 8. Others will be subject to the new carrier licence condition.

VDSL2 Interference

The ACCC has announced a declaration inquiry in relation to the next generation of broadband access technology over copper lines (VDSL2). VDSL2 presents unique competition issues, in that competing VDSL2 networks in the same multi-dwelling unit may interfere with each other. The government considers that this issue should be dealt with through existing industry mechanisms to the greatest extent possible, but will consider additional rules as needed for managing interference and co-existence between competing VDSL2 copper networks.

Disaggregation of NBN Co

Although the Government does not support the disaggregation of NBN Co into business units based on access technologies, it is preserving the option for future governments. The Vertigan panel stated that disaggregation along technology lines would reduce financial risks to taxpayers and shift the risk to investors. The Government felt the high costs, possible delay to the rollout and potential distraction to NBN Co’s management outweighed disaggregation and divestment at this point in time. The Government is however directing NBN Co to develop operational and business support IT systems that are readily separable by business units. This approach is aimed at securing financial and policy flexibility for subsequent governments whilst ensuring these systems do not become a barrier to any future disaggregation. As a result, NBN Co will be required to maintain separate accounts for its satellite, fixed wireless, FTTx, HFC and transit networks. Given that high costs are likely to be involved in the implementation of such systems, an independent investigator will be appointed to assess the circumstances with conclusions said to be reached by 1 July 2015.

New Regulatory Framework

Once these transitional steps have been successfully undertaken, the new framework will commence. This is estimated to be on 1 January 2017. ”Structural separation” will remain the default requirement for new high-speed fixed line broadband networks, including extensions of pre-2011 networks. The paper does not specify that structural separation will apply only for networks that service residential customers, but this would be consistent with the carrier licence condition. The ACCC will however be given the power to authorise “functional separation” of such networks and impose conditions where it is judged to be in the long-term interests of consumers.

The Government’s framework does not discuss the difference between structural and functional separation. In one view, true structural separation is achieved only where network assets are owned and controlled by a group that does not provide retail services. For example, Telstra will clearly achieve structural separation of its assets when those assets are transferred to NBN Co. The carrier licence condition that will come into effect on 1 January 2015 allows assets to be owned and controlled by separate companies within a group, provided that certain controls are in place. However, common control of the separate companies amounts more to functional separation than structural separation.

Further, the framework will ensure competitively neutral arrangements are put in place for the funding of NBN Co’s non-commercial fixed wireless and satellite services.

Legislation will be introduced that requires NBN Co to operate as the broadband infrastructure provider of last resort whilst also providing scope for other carriers to fulfil this role in circumstances where they take it on or are better suited to do so.

Telecommunications Infrastructure in New Developments

The Government has released a draft policy paper on a new approach to the provision of telecommunications infrastructure in new residential developments, with comments due by 15 January 2015.

Developers are responsible for ensuring the provision of infrastructure to their developments and any provider capable of supplying infrastructure should have an opportunity to do so. NBN Co will remain the infrastructure provider of last resort (IPOLR) for new developments within its fixed line footprint where the region has been declared ready for service and for other new developments within the NBN Co fixed line footprint where:

  1. NBN Co has identified a rollout region,
  2. NBN Co has a permanent active transit network that can cost effectively provide access to the nearest point of interconnection; and
  3. the development consists of more than 100 lots.

Telstra will remain the IPOLR for all other developments (including those outside the NBN fixed line footprint and those with fewer than 100 lots within the NBN fixed line footprint). An adjudicator will be established at the industry’s cost to determine disputes over IPOLR responsibilities, either by the Communications Alliance or the Government.

Under the Government’s policy for telecommunications infrastructure in new housing developments, developers and home-owners served by NBN Co will meet some of the costs of network infrastructure upfront. Developers will remain responsible for the cost and delivery of pit and pipe infrastructure unless otherwise arranged with the network provider. In order to ensure infrastructure in new developments meets consumer expectations, the Government will implement carrier licence conditions specifying minimum standards for infrastructure in new developments.

NBN Co IPOLR Charges

Under the IPOLR arrangements, NBN Co will levy a one-time connection charge of $300 that retail service providers are likely to pass through to end-users. NBN Co will also levy a deployment charge on developers of $600 for single-dwelling units and $400 for multi-dwelling units. NBN Co may charge developers a further co-contribution of up to 50% for the first $1000 per lot of capital costs it incurs where it does not have backhaul available to connect a new development. The developers will be liable for all backhaul costs in excess of $1000 per lot. Where NBN Co has backhaul to its nearest point of interconnect available, it will supply it on commercial terms to non-NBN networks in new developments where requested. Developers can be expected to pass these charges to home buyers.

NBN Co will consider simplifying its pit and pipe specification with a view to it being promulgated as the default industry standard which non-carriers would need to follow. Licensed carriers will be able to diverge from these specifications where they have their own established alternatives and they comply with the industry guidelines. Finally, NBN Co will trial arrangements for purchasing networks built to its specifications at pre-agreed prices from infrastructure providers, contractors or developers.

Key Dates

Key dates in the implementation of the Government’s regulatory and structural reform framework are as follows:

  • 1 January 2015 – New carrier licence condition takes effect.
  • 15 January 2015 – Closing date for submissions regarding infrastructure in new developments.
  • 1 March 2015 – New Government policy regarding infrastructure in new developments takes effect.
  • Second half of 2015 – Review of Part XIB of the Competition and Consumer Act.
  • 2015 – Passage of legislation to clarify the ACCC’s ability to regulate facilities through Part XIC of the Competition and Consumer Act.
  • 2015 – Release of terms of reference for assessment of funding of telecommunications infrastructure in non-commercial areas.
  • 2015 and 2016 – Development of framework for regulation of VDSL2 interference.
  • 2017 – Commencement of new regulatory framework requiring structural separation of providers of superfast broadband services as a default position.