news National broadband companies TPG and iiNet, as well as the competition regulator, have published extensive submissions to the Federal Government supporting the right for commercial telcos to deploy their own Fibre to the Basement (FTTB) infrastructure throughout Australia in competition with the Coalition’s Broadband Network (CBN) project, rejecting the idea that such planned investments should be blocked or otherwise regulated to support NBN Co’s finances.

In September last year, TPG flagged plans to deploy so-called fibre to the basement infrastructure to some 500,000 apartments in major Australian capital cities, in a move which will compete directly with the new Coalition Government’s plans to conduct similar rollouts under the CBN. Shortly after, Optus and Telstra confirmed that they were investigating similar options.

Although it is illegal for telcos to deploy infrastructure which competes directly with the CBN, under legislation enacted by the previous Labor Federal Government, both telcos are taking advantage of a loophole in the law which allows extensions of a certain length to existing infrastructure. Both TPG and Optus have existing fibre infrastructure in many areas in major cities.

However, shortly after the FTTB plans were revealed, Communications Minister Malcolm Turnbull made a public statement which appeared to have significantly undercut the stability of Australia’s telecommunications regulatory environment and caused a halt in the plans by the telcos. In comments made to the Financial Review, Turnbull appeared to call the legality of the planned FTTB rollouts into question, adding that the issue would be examined by the Panel of Experts conducting a cost/benefit analysis of broadband and associated regulation (the Vertigan Review).

Yesterday submissions to the Review were published online. TPG’s submission makes it clear that it believes the status quo with respect to fibre extensions should continue to exist.

In general, TPG’s submission focused on the argument — long made by the Australian Competition and Consumer Commission and others — that infrastructure-based competition delivers the best outcome to retail customers in the telecommunications industry.

“The NBN was not intended to be a fixed line monopoly and it should not be a fixed line monopoly,” wrote TPG. “Carriers (other than Telstra) who had invested many hundreds of millions of dollars building “superfast” networks prior to 2011 were, and should remain, permitted to make use of those networks to compete with the NBN and other broadband providers. The Government expressly wrote that right into law (Parts 7 and 8 of the Telecommunications Act). Infrastructure based competitors investing their own capital and who are working within the confines of Parts 7 and 8 (in this document, referred to as “Extension Fixed Line Competitors”) will bring speedy and positive outcomes for end users. There should be no requirement to regulate Extension Fixed Line Competitors.”

TPG pointed out that areas which it and others would cover with FTTB rollouts were likely to already be covered by competitive infrastructure such as other fibre networks and HFC cable. In addition, “superfast speeds” are also available through 4G mobile broadband, and NBN Co also has the ability to compete in those areas if the company deemed it necessary.

“… if there is a bottleneck and a competitor believes that it should be given access to the network facilities of an Extension Fixed Line Competitor, there is a current mechanism in the Competition and Consumer Act which could operate to consider and, if necessary, permit that to occur,” TPG added. “If reasonable competitive outcomes are not achieved, those provisions could be made more robust.”

NBN Co executive chairman Ziggy Switkowski told the Senate last week that the planned FTTB rollouts could have a “quite severe” impact on NBN Co’s finances.

However, TPG noted in its submission that it did not believe NBN Co’s finances were threatened significantly by the sort of competition its FTTB rollout would represent. The real threat to NBN Co, according to TPG, is from Telstra, due to the incumbent telco’s vast existing infrastructure.

“In the case of the TPG FTTB build, TPG anticipates reaching a potential 500,000 premises,” the telco said. “Many of those premises will be entrenched HFC customers, due to their requirement for Foxtel Television. Of the remaining addressable market, TPG might reasonably only expect to be successful in securing a percentage of the customers. The number of households who will obtain TPG FTTB will be insignificant compared to the number of households to be targeted by NBNCo.”

TPG was not the only party to argue to the Vertigan Review that competitive FTTB rollouts should be allowed.

Fellow top-tier telco iiNet broadly supported the idea of rival FTTB networks being rolled out to compete with the CBN, but it also stated that certain conditions should be set on those deployments, such as third-party access and pricing similar to NBN Co’s own model, as well as NBN Co’s overall finances being considered.

“It would appear that a truly level playing field cannot be achieved unless either: The competitors of NBN Co pay their share of the costs of servicing uncompetitive areas; or NBN Co receives subsidies from another source (eg taxpayer funds) to fund uncompetitive areas,” wrote iiNet.

The ACCC also broadly supported TPG’s argument. It wrote:

“Generally speaking, the ACCC considers that, where it is economically efficient, infrastructure-based competition is likely to promote the long term interests of end-users. Where efficient network duplication can occur, competition between networks can drive dynamic efficiencies in terms of product differentiation, innovation and timely investment. Telecommunications is a complex and highly dynamic industry, and therefore there may be benefits to be gained from encouraging network-level competition and innovation.”

“The ACCC considers that non-NBN Co network operators should generally not be constrained from deploying networks in competition with NBN Co, including in new developments, unless there are particular circumstances which suggest it would not be in the interests of end-users.”

However, the ACCC also noted similar subsidy concerns as iiNet did, writing: However, where NBN Co faces competition, its ability to compete on price may be constrained by broader objectives and/or regulation. In particular, NBN Co’s pricing response may be constrained by a requirement to internally cross-subsidise non-commercial regions or a degree of national pricing parity.

“The ACCC considers that explicit subsidies to non-commercial areas are preferable and more transparent than internal cross-subsidies. This approach could address the dual questions of NBN Co being better positioned to respond to competitive pressure arising from infrastructure-based competition and the broader social objective of promoting the interests of consumers in non-commercial areas.”

opinion/analysis

I think we’re starting to see a consensus here, in that several major telcos and the ACCC all appear to agree that rival telcos should be allowed to overbuild NBN Co’s infrastructure, with explicit subsidies used to support rural and regional areas rather than the current cross-subsidy approach. I believe the Abbott Government will find it very hard to argue against this approach, given that it is largely the one being taken globally — competitive infrastructure in the cities delivers strong broadband outcomes, with rural areas being subsidised by the Government due to the unsustainable cost to private sector companies to providing equivalent services in those areas.

I wrote a lengthy piece arguing precisely this several weeks ago. At the time, I wrote:

“Telstra, Optus and TPG are private sector companies volunteering to deploy additional broadband infrastructure throughout Australia. Nobody will be holding a gun to consumers’ heads, forcing them to sign up for FTTB through these providers, and the Government should not be stopping these companies from risking their capital through infrastructure investment. Consumers will only benefit from having three to four different providers in their building all competing for their broadband budget, and the Government should leave the business case for these investments up to the companies themselves. There’s also the fact that, although it doesn’t like to admit it these days, the Australian Competition and Consumer Commission has long been in favour of this kind of competition in Australia’s broadband market. This kind of competition is what the ADSL wars of the 2000′s were all about, as those same companies and others like iiNet frantically competed to fill up telephone exchanges with their own DSLAMs, delivering the broadband most of us enjoy today. If Telstra, Optus and TPG have their way, that battle would now extend to FTTB hardware in apartment basements. The only stakeholder to be disadvantaged by this kind of competitive deployment is the Federal Government, due to the financial damage such competition would cause to NBN Co. As Kohler mentioned, competitive FTTB rollouts would undercut NBN Co’s business model of subsidising the bush with profits from cities. However, one might well ask, why the hell should the Australian consumer living in a metropolitan apartment served by FTTB care about that? That’s an issue for the Government to sort out. Consumers just want better broadband, and they want it now. And they would rightly be outraged if the Government stopped private sector companies from (legally) providing it to them. As for the bush, well, there should be no problem with the Government continuing to subsidise unprofitable telecommunications services outside the cities to the tune of billions of dollars, as it has done for almost two decades with the Universal Service Obligation rules.”

Image credit: NBN Co