The Coalition’s long-awaited alternative plan for the National Broadband Network (NBN) has substantial implications for the Australian telecommunications industry.
The Coalition has long been critical of the Federal Government’s NBN policy, which promises that 93% of Australian premises will be served with a 100 Mbps fibre-to-the-premises (FTTP) service.
The release of Coalition’s policy is the first time it has revealed in detail its alternative plans – which it claims will deliver the NBN faster, cheaper and with lower prices for consumers. It claims that the policy will:
- deliver a 25 Mbps service to every Australian by 2016, and a 50 Mbps service to 90% of Australians in the fixed-line footprint by 2019; and
- reduce the funding needed to complete the project by $60 billion (compared to its estimate of $90 billion under the Federal Government’s policy).
A greater mix of technologies
The savings will be achieved largely by replacing the FTTP in the rollout with fibre-to-the-node (FTTN) for 71% of premises. FTTN would require NBN Co to deploy fibre to roadside cabinets within a few hundred metres of premises before cutting over to Telstra’s existing copper lines to reach the customer premises. Although speeds are slower than FTTP, the Coalition claims the cost per premises for FTTN will be 20–33% of the costs for FTTP.
22% of premises would still be served by FTTP, mostly in greenfields estates. However, the Coalition has left the door open for FTTP in brownfields areas where:
- Telstra’ s copper is degraded or too expensive to maintain;
- the end user is willing to pay for a FTTP solution; or
- there is a co-funding scheme – for example, where a local government, utility or private investor is prepared to invest and provide at least 50% of the net incremental funding.
The Coalition is not proposing to significantly alter arrangements for the 7% of Australian premises that the Federal Government plans to serve with fixed wireless and satellite solutions.
The return of infrastructure-based investment?
A key aspect of the current policy is that any new superfast networks must be open-access, wholesale-only and subject to NBN-equivalent pricing: requirements perceived as being designed to limit competition with NBN Co’s FTTP network.
The Coalition’s policy is to reverse this trend and remove barriers for infrastructure-based competitors to NBN Co. The Coalition would:
- remove the requirement for new superfast access networks to be wholesale-only (but would still require them to be wholesaled on an open-access basis);
- enable the vend-in of FTTP networks to NBN Co at a fixed price; and
- provide “financial incentives to” FTTP builders and operators that reflect the net cost savings their investment generates for NBN Co.
Moreover, the Coalition would effectively retain the NBN-equivalent pricing rules. Further, the policy suggests that NBN Co may play a greater role in providing fibre for point-to-point services and enterprise solutions – ie in markets that are already competitive. It remains to be seen whether these issues will dampen any potential new infrastructure-based competition.
In terms of existing infrastructure, the Coalition will allow Telstra and Optus to renegotiate their current agreements with NBN Co which require the shutdown of their existing HFC cable networks. Ongoing operation of the HFC networks would be subject to open-access requirements and “scope for enhanced competition”: the Coalition has indicated it does not expect Optus to take up this offer. The Coalition would direct NBN Co to overbuild the HFC footprint, mainly at the end of the NBN rollout.
The Coalition has also flagged interest in greater private sector involvement in its fixed wireless and satellite solutions.
Impacts for access seekers
The Coalition’s policy is likely to lead to lower prices for wholesale access to NBN services – the costs of the NBN could be significantly reduced under the Coalition’s policy, and it is planning to require NBN Co to reduce access prices by 10% (after inflation) over 10 years unless NBN Co agrees alternative arrangements with the ACCC.
The wider range of technologies and potential for multiple private sector infrastructure providers is likely to lead to higher integration costs and complexity for access seekers. The Coalition would request that industry body Communications Alliance work towards standardised interfaces and processes – but it seems likely the policy will still be burdensome for access seekers.
Turning around the NBN Co juggernaut will take time. At least three different reviews are planned, including:
- a 60-day strategic review of the cost and time to complete the NBN under the existing policy and the Coalition’s policy;
- an independent audit into the Federal Government’s NBN policy and NBN Co’s governance; and
- a 6-month independent cost-benefit analysis and review of regulatory arrangements.
The Coalition has estimated it will take 12 months from the Federal Election for NBN Co to revise its network plans. During this time, we expect that NBN Co will be directed to focus its FTTP rollout in underserved areas. Nonetheless, the Coalition anticipates 65% of the rollout being completed by 2017, with the remaining 35% being completed by 2019.
The Coalition intends to honour existing contracts “appropriately entered into” but will seek to vary these contracts in light of the policy. Key among these will be NBN Co’s $11 billion Definitive Agreements with Telstra setting out the terms of its participation in the NBN. Variations to the Definitive Agreements are likely to be complex, but the Coalition has stated that it will “seek” to vary these agreements “on the basis that in net terms … Telstra shareholders are kept whole”.
There are questions which remain about implementation of the Coalition’s policy, including the terms on which Telstra may agree to provide access to its copper for the FTTN rollout, the likely timeframe for commercial negotiations, and whether the policy provides for uniform national wholesale pricing.