news The National Broadband Network Company has decided to take action into its own hands to deal with TPG’s plans to deploy competitive broadband infrastructure in Australia’s cities, revealing plans this morning to accelerate its own rollout to compete with TPG ahead of any expected decision on the issue by Communications Minister Malcolm Turnbull.

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 Coalition’s Broadband Network (CBN) rollout, formerly known as Labor’s National Broadband Network (NBN) initiative. Shortly after, Optus, Telstra and iiNet confirmed that they were investigating similar options.

Although it is illegal for telcos to deploy infrastructure which competes directly with NBN Co’s rollout, under legislation enacted by the previous Labor Federal Government, the telcos are taking advantage of a loophole in the law which allows extensions of a certain length to existing infrastructure. All of the telcos mentioned have existing fibre infrastructure in many areas in major cities.

NBN Co executive chairman Ziggy Switkowski told the NBN Senate Select Committee in mid-March that the FTTB rollout plans had the potential to have a “quite severe” impact on NBN Co’s finances, causing a revenue hit of up to 10 percent. In late March, TPG revealed it had already started deploying the FTTB infrastructure.

Over the past seven months since the plans were first revealed, and despite the fact that the TPG FTTB rollout has begun and that as Communications Minister he has direct responsibility for setting and administering telecommunications law in Australia, Turnbull has repeatedly refused to say whether TPG’s rollout breaks the law or not.

Shortly after the FTTB plans were revealed, 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). The review is not expected to be delivered until later this year.

This morning NBN Co’s new chief executive, Bill Morrow, revealed plans to take matters into his own hands on the issue.

In a statement, NBN Co said it would “bring forward” its rollout of broadband to apartments and office buildings in Australia’s inner cities, in what the company termed a “commercial response” to emerging competition in those areas from “vertically integrated telecommunications carriers”.

NBN Co explicitly listed target areas which TPG had already planned to cover with its rollout, such as Haymarket in Sydney, New Farm and Fortitude Valley in Brisbane and South Melbourne, with NBN services scheduled to be available to these premises in the middle of 2014.

NBN Co said it was concerned that rollouts of the type planned by TPG may require building owners to agree to exclusive supply arrangements and thereby limit competition at the retail level.

NBN Co Chief Executive Officer Bill Morrow said: “The NBN levels the playing field for Australian telecommunications and creates real and vibrant competition. We can make this statement because the NBN doesn’t sell directly to consumers and is open to all retail service providers to use on equal terms.”

“Vertically-integrated carriers – companies that both own networks and market to consumers – cannot offer those same guarantees. A building that signs up to TPG runs the risk of being left with only one retail service provider – TPG itself. We believe NBN represents the superior solution for building owners and the families and businesses they house. There are 44 retail service providers operating over the NBN, representing more than 90 per cent of the retail broadband market.”

Morrow pointed out that NBN Co’s concerns had been echoed by others in the Australian telecommunications industry.

A survey of industry participants by Communications Day found that 47 per cent of respondents were opposed to TPG’s plans to offer Fibre to the Basement to apartments; 20 per cent said TPG should structurally separate its network arm; and another 20 per cent said it should offer wholesale access on reasonable terms. Just 13 per cent said TPG should be allowed to exclusively offer its own services over its planned FTTB deployment.

“The verdict is clear,” Morrow said. “The NBN offers a once-in-a-lifetime opportunity to allow competition in Australian telecommunications to flourish. A clear majority of the industry is opposed TPG’s plans or wants the firm to be subject to competition constraints.”

opinion/analysis

I couldn’t help but laugh out loud when I read this media release, given the absurdity of the situation.

Think about it for a second. Here we have a major Australian corporation in the form of TPG which has decided to go ahead with its own broadband infrastructure rollout, because it sees a market opportunity to make money and it’s tired of waiting for the Government to get its own broadband project organised. The private sector is trying to provide what the Government has taken too long to get to.

So what does the Government-owned body responsible for broadband development do? Why, act quickly to squash competition from the private sector, claiming that it is delivering a “commercial response” to TPG’s efforts. Hilarious! And, of course, the icing on the cake is that the current Federal Government is a Coalition Government, which is supposed to be supportive of big business and the private sector. Instead, it’s squashing private sector competition like a bug!

The parallels between this situation and Telstra’s move to follow Optus’ HFC cable rollout down every street in the late 1990’s and early 2000’s are also quite amusing.

But in all seriousness, folks, what we are seeing here is actually a highly engineered “solution” to the quandary which has been plaguing Turnbull for the past few months.

Regular readers will be aware that the Minister has been in a bind ever since TPG announced its FTTB plans. On the one hand, there is the need to maintain NBN Co’s financial viability. Despite Turnbull stating on Lateline that the NBN project is “not a commercial project”, it is very much apparent that the Coalition Government needs to maintain it as such, or risk the money that it is investing in NBN Co coming home to roost on its balance sheet. NBN Co also needs to maintain its commercial nature in order to pursue its cross-subsidy model, where profitable city dwellers subsidise infrastructure in the bush.

On the other hand, of course, and as I have pointed out, TPG’s FTTB rollout is very real, it is here now, and customers are being signed up. Turnbull has personally stated many times that he is in favour of private sector investment in the telco industry, and it remains true that TPG’s rollout (and, potentially those of Telstra, Optus and iiNet) will deliver faster broadband to many Australians in city areas quicker than NBN Co will be able to.

It would be highly unsightly for a Coalition Communications Minister to block private sector telco infrastructure rollouts to protect a government monopoly.

What we’re seeing here is a solution cooked by by Morrow and Turnbull to deal with the situation. Turnbull lets Morrow announce a “commercial” response to TPG’s rollout, thus giving the Minister the ability to claim that the industry and NBN Co are sorting out their own problems themselves and wash his hands of the matter without actually making a decision on it. Morrow gets to do what NBN Co should be doing anyway — accelerating its rollout as much as possible, especially in metro areas where demand is high for his company’s services and where NBN Co can quickly pull in profits that will pump up its finances and make it look good during those new quarterly financial results sessions.

There are, of course, quite a few problems with this.

Firstly, what we’re seeing here is still a Coalition Government squashing market competition and private sector investment. That’s unsightly by anyone’s measure and I suspect it will come back to bite Turnbull with his Cabinet colleagues, especially Treasurer Joe Hockey.

Secondly, TPG may call NBN Co’s bluff and go ahead with its rollout anyway. If it does, and I believe it will, I anticipate that NBN Co and TPG may end up in court or before the ACCC, where their respective rollouts and building access terms will eventually be settled. We’ve seen this before with companies like Telstra and iiNet. And it won’t end nicely.

And lastly, of course, you do have to wonder whether what Morrow is saying is the purest hype. NBN Co has failed abysmally at accelerating its rollout over the past several years. Does the company actually have the construction capacity to accelerate its metro deployment and get more fibre in Australia’s built-up areas as quickly as Morrow says it can? Don’t forget, after all, this executive, while highly capable, has only been on board at NBN Co for a week. I suspect he’s in for a very sharp learning curve about just how slowly NBN Co does things.

Morrow has just made the dire mistake of placing a date (mid-2014) on NBN Co’s rollout in the areas of Haymarket, Fortitude Valley and South Melbourne. You can bet I’ll be giving NBN Co a call in a few months to see whether it has actually delivered on that promise in those areas. Based on past performance, I suspect it won’t be able to get its rollout done in time.

As a final thought, you do have to wonder what technology NBN Co will use to target the areas TPG wants to target. These areas will very definitely be inside the HFC cable footprint, which means they should technically get HFC extensions. However, NBN Co isn’t slated to get access to the HFC cable networks for an anticipated year or more. Does this mean NBN Co will overbuild its own infrastructure in some metro areas, just to compete with TPG? It’s a fascinating question, isn’t it? :)

Image credit: NBN Co, Vodafone