Will NBN Co become a Telstra reseller?

Listening to Communications Minister Malcolm Turnbull, one could get the impression that the remainder of the world has entered into another time dimension and Australia has returned to the 1950s. Talk of copper access networks and Hybrid Fibre Coaxial (HFC) abounds and Australians are being told they don’t know what they need now and no one knows what will be needed by 2020.

But did you also know that the Public Switched Telephone Network (PSTN) is going to live on for decades and as it gets older the operation and maintenance costs will skyrocket and Australians will have to pay?

And what of competition under Turnbull’s plan, and how can NBN Co avoid becoming a Telstra reseller?

Multi-technology mix wobble

The wheels appear to be wobbling on the multi-technology mix (MTM) bandwagon. By lowering the technology bar and opening the door to infrastructure competition the government has lost control over the tightly knit plan put together by the former government where companies were discouraged from access network infrastructure expenditure because they knew that NBN Co would roll out a wholesale fibre access network.

Telstra CEO David Thodey recently told Business Spectator that Telstra’s focus during discussions with the government will be shareholder interests, maintaining the value of the $11 billion 2011 agreement and retaining ownership of fixed infrastructure in the event that competitors continue to invest in infrastructure.

Thodey said,“I think it’s very important for the government to be very clear on this point: the fundamental assumption of the build of the NBN, that it would be the only wholesale network in Australia.”

Evidently the government and Telstra are yet to see eye to eye on the current discussions, The government appears set on an MTM approach and Telstra will see this as an opportunity -- and the outcome is not likely to sit comfortably with the industry and consumers. There was considerable disquiet when the full details of the 2011 Telstra NBN Co agreement became known.

The government is facing a potentially hostile Senate and a key to the success or failure of NBN-related legislation will be the Palmer United Party. PUP should quickly realise that support for the government’s unpopular NBN policy will antagonise voters, especially when the full details of a renegotiated Telstra agreement become known.

So what will the Senate minor parties have to consider before taking the unpopular leap to support the government’s MTM NBN 2.0 plan?

Telstra and Optus might retain ownership of HFC networks that are leased to NBN Co at additional operational and maintenance cost

Telstra might retain ownership of the copper access network (CAN) and be paid to maintain it for decades to come

TPG continues to roll out fibre-to-the-basement (FTTB), forcing competitors to match this move

Foxtel’s agreement with Telstra living on -- and this includes guaranteed bandwidth, the Telstra HFC network and minimum customer numbers

Telstra’s move to provide Fon Wi-Fi could be a bargaining chip used to prevent NBN Co offering wholesale Wi-Fi products

The unwritten and bewildering ban on NBN Co providing wholesale access network products that connect vehicles, trains, planes, buses, boats to the NBN being formalised, thereby cementing limited competition in mobile cellular and Wi-Fi

NBN Co’s product pricing at a premium to achieve profitability and viability remains uncertain

Will the government’s focus on negotiating budget measures over the next couple of months open the door for compromise regarding the NBN’s future, or will the government’s MTM NBN 2.0 get up?

The PSTN lives on

The global telecommunications industry is slowly but surely entering into an era of the next generation network where the research and development goals of the past 20 years are finally coming to fruition.

By replacing existing copper based networks with fibre, the telecommunications industry will be able to reduce network complexity, improve the rate of service convergence and move to an all-Internet Protocol (IPv6) network, reduce congestion, set and maintain maximum communication link and network utilisation and introduce traffic class management to improve quality of service.

An added benefit will be the opportunity to retire the 30-year-old PTSN exchanges and copper networks that are now 60 or more years old.

The decision by the Coalition government to roll out a fibre-to-the-note (FTTN) network that utilises existing fixed infrastructure for telephony means there is a strong possibility that the Telstra PSTN exchanges will need to be retained in service for the foreseeable future.

With FTTN there are three ways that telephony can be provided:

Voice over IP (VoIP) made available through the network termination device (NTD) The telephone signal is converted to VoIP at the FTTN Pillar Termination Point (PTP) The telephone signal is combined with other local customer telephone signals at the PTP, combined and carried back to a PSTN connection.

The NBN Co document titled “Test Description: Fibre to the Node Pilot” dated May 23, 2014 describes the FTTN pilot product in Section 2.1 as

an Ethernet-based, Layer 2 virtual connection on the NBN Co FTTN Test Network that carries traffic between: a Test UNI at the First Socket; and the NNI associated with the CSA in which the Pilot Premises is located; and optional carriage of a POTS Telephony Service from the Pillar Termination Point through an NBN Co Combiner to a Test UNI, for the purposes of enabling Test Participant or a downstream service provider to test the supply of a Carriage Service or Content Service to End Users at Pilot Premises.

And the NBN Co test description includes the statement “The FTTN Pilot Product may also comprise carriage of a POTS Telephony Service as described in clause 2.1(b) where agreed by the parties.”

What this means is that people wanting a telephone service for calls or for medical and other devices will continue to use the PSTN, which is reliant on Telstra’s infrastructure, and the cost of providing this service will be higher over time than what would be possible if the PSTN was retired. With the number of customer connections to the PSTN diminishing over time the increasing cost of maintaining PSTN infrastructure will need to be passed on to all NBN customers.

Does the NBN Co FTTN plan include building in an underlying fee to compensate Telstra for the cost of maintaining old and obsolete PSTN infrastructure?

Avoiding 'Telstra Mark II'

One of the goals behind the former government’s plan for the NBN was to ensure that NBN Co did not become 'Telstra Mark II'.

Earlier this week in Business Spectator, the Competitive Carriers Coalition (CCC) chairman Matt Healy correctly argued that there was “appalling history of failed competition in communications markets” and an excessive risk associated with permitting “NBN Co to expand its remit without thorough scrutiny".

But there is a greater risk in continuing to let the telecommunications industry cherry pick and unfortunately Healey did not address how the CCC was going to become a national backhaul competitor replacing its member's current backhaul cherry-picking practice.

Healy is right though in arguing that Australia does not need NBN Co to become 'Telstra Mark II' but equally and more importantly, Australia does not need NBN Co to become a Telstra reseller while the telecommunication industry continues along its cherry-picking way, because NBN Co will become unviable.

It is timely to look again at the four fundamental problems with FTTN outlined by Optus in June 2006:

By reaching only 4 million homes and businesses, it would create a two-tier Australia, with less than half the country able to receive high-speed broadband, and the remainder stuck with low-speed broadband

It would establish Telstra as the monopoly provider of FTTN -- because there is no way for competitors to use ‘unbundled’ elements of the FTTN

It would seriously damage ULLS-based broadband competition -- indeed this appears to be a significant motivation for FTTN

It would enhance Telstra’s capacity to sabotage its competitors

If NBN Co leases a Telstra owned HFC network and CAN for FTTN the first point remains remarkably accurate. Telstra, through its proxy NBN Co, becomes a monopoly provider of FTTN and customers are forced to utilise the Telstra PSTN infrastructure for telephone, medical and other devices so point two retains currency.

Effective competition can be undercut by Telstra because it gets a 'clip' from every customer using HFC and FTTN and finally Telstra will retain the capability to 'manipulate' the provision of NBN Co HFC and FTTN products.

Though on this last point Turnbull has been remarkably silent on whether the HFC networks would be rebuilt to fill in black spots and ensure that the HFC network provided comparable performance everywhere.

If NBN Co becomes a 'Telstra Mark II' reseller of Telstra products, Telstra regains effective control of the industry (did it ever lose control?) and the NBN becomes the greatest 'lemon' in Australian history.