Confusion on broadband

I have to admit that the supposed deal between the NBN Co. and Telstra has me confused about the Government’s intentions here.

Let me see if I understand things correctly and please, if anyone has any real details please let me know.

1. One of the big reasons the Government went with the NBN plan was to create competition in telecommunications and broadband which we were surely lacking. It was also an opportunity to rationalise regulation.

2. The government went so far as to insist that any Telstra involvement in the NBN and even wireless spectrum may well be contingent on it ditching its stake in Foxtel — one of the benefits of that being that it would be a potential NBN Co competitor.

3. The agreement proposed yesterday does a U-turn on all of that by saying that Telstra will continue to have a Foxtel stake but now the potential competition that might come from cable will be neutralised as part of the agreement. That is, no more BigPond cable including all of the upgrades that would have given Australia two competing telecommunications networks across a great number of localities.

Here is why I think No.3 is what is occurring:

Telstra will transfer customers from its copper and hybrid fibre coaxial cable networks to the new network in return for further payments from NBNCo.

Telstra will then decommission its copper and cable networks, getting out of the business of wholesale networks to concentrate on providing retail services and mobile and wireless services.

Senator Conroy said this would achieve ”structural separation” by splitting up Telstra’s long domination of the wholesale and retail aspects of the communications sector.

“Structural separation” my foot. It isn’t structural separation if you shut down the upstream entity. That is decommissioning. Separation involves putting those assets in independent hands so they are a source of competition. I don’t relish handing over domination by one firm to domination by a new one.

As I said, I might be missing something here but that is how I read the news. If anyone clarifies, I’ll be happy to update. But at the moment this is truly worrisome for the whole NBN plan and its potential social dividends. That said, if I am right I can’t believe that the ACCC will ever authorise what effectively amounts to a merger between the only two potential competitors in an industry.

8 thoughts on “Confusion on broadband”

  1. My understanding of the NBN and Labor’s concept is:
    1. nationalise the wholesale broadband infrastructure and allow competition on the retailing of broadband
    2. structural separation not of Telstra but of the whole Telecoms industry, where NBN provides wholesale, and everyone else retail. A key concern of the McKinsey implementation study was wholesale competition from non-NBN networks, so called low hanging fruit. Recommendation 74 suggests a levy on competing networks to reduce the incentive for cherry picking off low cost high return customers.
    3. Labor is interested in equity: Universal access to affordable broadband. The McKinsey reports recommends a flat rate across Australia for NBN network access (not to mention unlimited downloads), and if low cost customers are lost in the urban areas to competition, such cross-subsidies are lost. Hence it makes sense to get the Telstra ADSL, and cable customers onto the NBN. Ideally even the Optus HFC customers, but paying for Optus cable is now probably redundant (to Optus’ detriment).
    4. Labor is interested in growing GDP and providing basic universal infrastructure. Libs are interested in a low regulatory environment where firms are free to pursue their preferred investments and grow GDP. Labor see a GDP spike from cheaper telecoms and higher broadband usage. Libs see rational investing and the NBN is not rational. I agree. The NBN is visionary, not rational. The NBN is a gut call, with some logical backfill from McKinsey. The current Telstra NBN deal helps add some logic, but everyone is making this one up as they go, feeling their way forward. Hence the long negotiation time. Labor is idealistic, and the Libs rational/practical. It will remain to the electorate (and the ACCC) whether we buy into the NBN vision or the Liberal rationality. No answer is right, but the choice is a reflection of our Nation’s current values.


  2. I’m pretty sure Labor wants to treat this like a utility; own the infrastructure and allow private enterprise to sell the access, like electricity in Qld.


  3. Richard, I think what Joshua is saying is that he’d like to see facilities-based competition – i.e. Telstra’s copper and cable networks, in independent hands, competing with the NBN’s fibre optic network. However, to be honest, I’m not quite convinced why having all this infrastructure under the control of NBN and regulating access would be such a bad idea. Having the NBN control this infrastructure reduces inefficient duplication, by the NBN given that the objective is to cover 95%(?) of the population. Whether that is a reasonable objective is something else all together …


  4. Why having all this infrastructure under the control of NBN may not be such a great idea Kobs is that there has been no effective costing of the NBN done and so without any alternative it’s going to be pay what we say or go without, some competitive market that’ll be. Abbott has repeatedly raised where is the business plan and I reckon people have a right to know what they may be expected to pay for super speeds most of us can probably do without anyway. They were prattling on in Question time today on all the benefits, most of what was being mentioned already available without fibre optic.


  5. The NBN report published last month is clear on this – they cannot make the numbers work with competition. In fact they go as far as suggesting that competing networks should be penalised. It is clear that with competition, especially competitin from a network which is already sunk into the ground, that NBN pricing will have to be lowered. This would mean that rather than setting prices on a cost+ basis, which they want to do to make a return on capital, they would be forced to float to market prices – who knows what they wlll be in 10 years time – hence the fervour to creat a monopolist position. Of course they have missed one small issue in doing the deal with Telstra. Mobile is going to overrun the fixed line business by the time NBN is finished. When 4G is delivering >90mbs into the urban environment, the FTTP architecture is going to look like overkill. This is already happening – look at Telstra’s business dynamic – and devices like iPad and Android phones are accelerating this. The lesson is you cannot buck the market!


  6. Greg, without any alternative it’s going to be pay what we say or go without, some competitive market that’ll be. The McKinsey Report ( advises pricing for penetration – see Exetel Tas NBN prices starting at $0 plus $2/Gb for basic (25mbps) to $50 plus $0.75/Gb for fast (100mbps). Mckinsey advise wholesale price around $30 for entry level broadband (25mbps; unlimited Gb) plus $5 for unlimited calls. Equates to about $55-60 retail entry level. But three other ISPs are pricing NBN like a premium service: iiNet, Primus $50 for 5Gb; $90 for 15 Gb. I know who I would prefer. I will attach my comparison of the initial NBN prices below.


  7. (as mentioned above) :See NBN early pricing Value Watch analysis here ( Exetel shows a clear value lead over IINet and Primus. Summaries of pricing per Gb and per Month included.
    Since this analysis, Exetel adjusted their entry level price up from $1.50 per Gb to $2 per Gb and monthly access down from $10 to $0. No installations costs are charged if connected before 31 July 2010. Tasmania only. Boo… These prices are better than my current $60 for 4Gb and all local/std calls on Virgin Broadband.


  8. David: Even 4G can’t deliver 90Mbps actual speed simultaneously to an entire population in an urban area. There simply isn’t enough spectrum available.
    In fact technologies like microcells are going the other way – extending out the mobile network using the fixed line network as backhaul.


Comments are closed.