Baby Steps for NBN Co

NBN Co has slowed down the rollout whilst the new Telstra agreement is finalised. During the lull NBN Co is trying to sort out some of the issues found during the start-up years. In Business Spectator read about the baby steps taken by NBN Co to fix the construction process and pricing structure are welcome news for the telecommunications industry.

Read the full article below

"When life gives you lemons, make lemonade." It’s an overused proverb but one that succinctly sums up just what’s going on with the National Broadband Network and NBN Co. The Coalition’s NBN policy remains a lemon, but at least NBN Co chief executive Bill Morrow and his team are trying to make it a little more palatable.

It’s now 10 months since the last federal election and NBN Co has gone through considerable change, starting at the top with a new board led by Dr Ziggy Switkowski and a new management team led by Morrow.

In April this year NBN Co was given an updated Statement of Expectations by Communications Minister Malcolm Turnbull and Finance Minister Mathias Cormann, to cement the change in direction that was first identified in the post-election Interim Statement of Expectations.

For the past five-and-a-bit years, NBN Co has moved from being a start-up with a vision, to become a telecommunications wholesale product provider that is expanding its network footprint daily.

There is still debate about whether there was a need for NBN Co in the first place, but this is merely petty political point-scoring. History tells us that both sides of politics tried to get the telecommunications industry to begin a modernisation and upgrade program for the fixed telecommunications infrastructure, and failed.

Turnbull has stated on several occasions that we should not expect to see NBN Co adding vast quantities of customers to the network until 2015, but if the renegotiated agreement with Telstra and the cost-benefit analysis are delayed further the slow down at NBN Co could continue well into next year.

The NBN has been subjected to a considerable number of reviews and audits since the last election and the outcomes have been predictable. Unsurprisingly, there’s overwhelming support for the Coalition’s policies. With the final two reports due to be delivered by the government's hand-picked Cost-Benefit Analysis and Review of Regulation panel led by Dr Michael Vertigan yet to emerge, one wonders what the hold-up is. And has the renegotiated Telstra agreement been delayed due to legislative uncertainty, or the lack of solid financial and technical justification?

From NBN Co’s perspective it does not matter -- what does matter is being able to get on with the job, and for some within NBN Co the delays must be frustrating.

Baby steps in the right direction

Five years ago, NBN Co could have hired someone familiar with tech start-ups and saved itself considerable embarrassment in later years. The key for a start-up is not how many people can get access to your product but how many are actively paying for it.

Exactly who is to blame for NBN Co’s construction methodology is unknown, and why NBN Co persists with an approach that is doomed for failure is uncertain. However recent moves to tighten up the construction approach are baby steps in the right direction.

From day one the construction approach should have been to connect every house to the NBN within days of the fibre passing the house. Failing to do so caused the mess that occurred in Tasmania and also in other locations when the copper access network (CAN) was turned off 18 months after a Fibre Serving Area (FSA) became operational.

On June 12, NBN Co announced that Service Stream’s Field Service Delivery contract was renewed for five states for a further two years. NBN Co's announcement stated that the company was "working with Service Stream and its other delivery partners to improve the connection process by more closely coordinating the installation of equipment in the home with the rollout of the cables in the street".

What this means is that the on-demand installation process is being replaced with an automatic installation of the NBN connection into premises within, hopefully, a few days or a week of the fibre passing premises.

The simple way to stimulate demand

The telecommunications industry has complained loudly about the high charges set by NBN Co for wholesale products under the usage-based pricing model. On July 30, NBN Co released a discussion paper that seeks input from the telecommunications industry on proposed changes to the charging model.

Under the old charging model there was a usage based Connection Virtual Circuit (CVC) charge per Mbps per month for a backhaul connection from the NBN to the retail service provider (RSP) network. In addition, there was also a per-subscriber Access Virtual Circuit (AVC) charge for traffic from premises to the aggregation point at a Point of Interconnect (PoI).

For many RSPs the charging model was seen to be uneconomical and could lead to higher prices over time, whereas Australian customers would expect broadband access charges to reduce especially as more people joined the NBN.

The NBN Co Pricing Construct and Billing Simplification discussion paper canvases several approaches that could lead to either the CVC charge being reduced or replaced entirely with a simplified charging model.

The argument that NBN Co needs to find a way to change the charging model so that it is revenue neutral or to ensure that large companies like Telstra don’t get an unfair advantage misses the point of what should be achieved.

NBN Co needs to simplify and reduce charges to generate demand, and this should be by facilitating more RSPs entering the market and to ensure that the NBN is competitive with alternate broadband solutions.

And competitive does not mean the same price as ADSL2+ and HFC or to provide Australians with an increase from "up to 24 Mbps" available using ADSL2+ to "up to 25 Mbps" promised by the Coalition.

For the NBN to be competitive it must be cheaper than competing broadband solutions and offer substantially better connection speeds (1 Gbps or higher), increased monthly downloads (greater than 300 GB) and less congestion (no more than 70 per cent utilisation on NBN links).

Fixing the damage from the start-up years

NBN Co is slowly moving forward and 2014 will be remembered as a year when NBN Co had time to address some of the mistakes made in the start-up years.

Has NBN Co done enough to address industry and consumer concerns? We won’t know the answer to that until we are well into 2015.

The construction approach has not been fully fixed but we should appreciate that NBN Co has taken some of the rough edges off what has been an ongoing failure. NBN Co knows that by the middle of 2016 there must be a significant improvement in construction results and failure to deliver will be the end of the current management team.

But what is the point worrying about construction if the NBN is built and there are no customers because the access charges are too high to create a competitive environment for RSPs to be able to offer enticing deals to customers?

It's vital that NBN Co resolves the access pricing concerns and puts in place a new pricing regime that meets industry and customer needs.