NBN: Turnbull's time is up

The delaying tactics have not worked and options are fast falling by the wayside. Where is the Communications Minister Malcolm Turnbull? Apart from announcing new reviews and audits, and talking up select sections from reports, we have heard nothing concrete about what is going to happen next. Today in Technology Spectator the deafening silence is discussed. Turnbull's time is nearly up and if he does not act quickly the NBN will be beyond saving and Telstra will act to counter TPG.

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There are only 96 days until July 1. Why is this important? Because the Coalition government hopes that the new Senate which commences on July 1 will be amenable towards the government’s legislative agenda.

But for the Communication Minister Malcolm Turnbull July 1 will seem like an eternity away. The Coalition’s plan to hold a string of National Broadband Network (NBN) related reviews and audits to fill the gap between the election and 1 July has achieved very little.

And to be fair, Turnbull’s failure is in part also a failure of the former government.

Fibre extension loophole

The loophole that TPG appears to be utilising to rollout a fibre-to-the-basement (FTTB ) network within inner urban areas was legislated by the former government, with the support of the Greens, to ensure that industry investment in fibre network expansion to support high value business and industry customers could continue.

As long as the original fibre-to-premises (FTTP) NBN rollout continued the possibility that a telco would roll out FTTB utilising the loophole, that permits telcos with fibre access networks to add extensions of less than a kilometre, was remote.

The largest of these fibre access networks is owned by Telstra and the telco's chief executive David Thodey has warned that TPG just might force Telstra's hand to start rolling out a FTTB network of its own.

At a recent Senate hearing the NBN executive chairman Ziggy Switkowski stated that a TPG FTTB rollout could hurt NBN Co’s bottom line by up to 10 per cent.

If Telstra were to act, then Optus and others would follow. The result would be a loss of revenue for NBN Co of 30 to 40 per cent and NBN Co would cease to be a financially viable organisation.

NBN Co has commenced a FTTB trial and Telstra, Optus, iiNet and other companies are participating. But this has not stopped TPG from quietly commencing to build a FTTB network. The details of how TPG’s FTTB network will operate are unclear and it is almost certain that TPG believes that its FTTB network should be put into the same category as the Telstra and Optus HFC networks.

Turnbull’s distractions

Rather than focusing on the main game Turnbull appears to be distracted. Is he counting down the days to July 1? What if the new Senate does not support Coalition NBN legislation? Will the government let NBN Co sink?

Turnbull’s much trumpeted NBN strategic review provided justification for concern when it was found that the financial benefits of the Coalition’s NBN plan were marginal and the end result would be an NBN cobbled together using aging and obsolete technologies that would be delivered no faster than the original NBN.

Last month Turnbull promoted the government’s Broadband Availability and Quality Report 2013 and the associated MyBroadband website. After reviewing the report and the MyBroadband website the outcome could only be the report and website were of little or no value. Turnbull was ridiculed on social media and the criticism has not diminished even though upgrades to the MyBroadband website have recently been announced by theDepartment of Communications.

Turnbull’s interaction last week with small business owner Julia Keady provides some insight into his situation. After demonstrating why social media must be used carefully, Turnbull went on to complain on his blog that it was unfair that his remarks were taken out of context.

Turnbull has failed to justify the Coalition’s new NBN plan, whatever that is, and it appears that the telecommunications industry has decided not to wait for the last episode of the Game of Reviews and Audits to find out if the Coalition government has any clue what to do.

Turnbull must turn his attention to one of his primary responsibilities and that is to ensure the $43 billion being spent by NBN Co to rollout next generation access network infrastructure is not wasted.

What is Turnbull going to do about TPG? He could announce yet another NBN related review but that would be another joke.

Independent Cost Benefit Analysis and Review of Regulation

Turnbull might think that the Independent Cost Benefit Analysis and Review of Regulation chaired by Dr Michael Vertigan might provide the Coalition government with a way forward, but is it going to deliver an outcome that's palatable for Turnbull?

It doesn't take a rocket scientist to understand that the Australian Competition and Consumer Commission’s submission to the Vertigan Committee signals trouble for the government.

The ACCC supports infrastructure competition and removal of NBN Co’s ability to internally subsidise “the cost of supplying non-commercial services.”

The ACCC correctly argues that NBN Co’s ability to cross-subsidise would be affected if there was infrastructure competition in “particular geographic markets” and if the NBN rollout was “reduced due to a decision not to overbuild other networks in particular geographic regions.” If infrastructure competition was to occur the ACCC argues that the NBN rollout would require “an explicit subsidy by the government of part of the network build costs in non-commercial regions.”

Ongoing subsidies for non-commercial services would necessitate ongoing subsidies potentially levied from industry participants including network operators and retail service providers.

The argument against internal subsidies has long been used as an argument why Telstra should be separated into two companies – retail and wholesale. Last week it was pointed out that by separating Telstra into two companies now it might be possible to head off the regulatory and industry competition tsunami heading our way.

The ACCC submission agrees with telecommunication industry structural reform but goes on to highlight that Part XIC of the Competition and Consumer Act 2010 is limited in its ability to deal with:

  • Structural separation
  • Non-discrimination
  • Upgrades or new services

What this means is the ACCC cannot prevent a company that rolls out FTTB from internally subsidising its own retail products to thwart competition if the FTTB network was opened to wholesale access (a complaint regularly made about Telstra’s copper and ADSL stranglehold). It cannot force a company to offer wholesale-only products over infrastructure that the company owns (Telstra and Optus HFC, and TPG FTTB?) and cannot force Telstra to structurally separate.

If TPG builds a FTTB network then the ACCC is powerless to force TPG to offer wholesale access to the FTTB network because there would be competition from DSL providers who have regulated wholesale access to Telstra’s copper.

The network extension loophole and limitations to Part XIC of the Competition and Consumer Act 2010 will force Telstra, Optus and others to compete directly with TPG by deploying FTTB.

Turnbull’s time is up

Turnbull’s expectation that the endless reviews and audits will provide a way forward is mistaken. He faces the same quagmire that Rudd found in 2007. And he is sinking fast.

The reviews and audits won’t stop TPG acting quickly to build a FTTB network to gain a seat at the negotiating table with Telstra and Optus.

The loss of direction, lack of a clear and sensible NBN plan and cost blowout associated with the Coalition’s multi-technology mix NBN is starting to take on gargantuan proportions and is likely to spawn a whole new set of commissions and reviews at the next change of government.

Turnbull can’t wait until July 1 hoping that the new Senate will support whatever NBN plan the Coalition comes up with on 31 June. Decisions are being made now by telecommunication companies to cherry pick high value customers within inner urban areas. We should expect Telstra to react to TPG in coming weeks.

Turnbull’s NBN house of cards is on shaking ground and he is running out of time.