Curtain rises on NBN's second act

Telstra chief executive David Thodey and NBN Co boss Bill Morrow may have been beaming as the reworked deal was finally signed but it will be interesting to see how long before the bonhomie gives way to acrimony.

The best of friends: Telstra and NBN Co

As 2014 draws to a close, the stage has been set for National Broadband Network’s (NBN) second act to begin and 2015 promises to hold many twists and turns in this tragicomedy.

Telstra chief executive David Thodey and NBN Co boss Bill Morrow may have been beaming as the reworked deal was finally signed and sealed but how long before the bonhomie gives way to acrimony will be interesting to see.

The first blow struck between the two occurred on October 30, 2013 when Telstra sued NBN Co over a $100 million dispute about when consumer price index adjusted payments should begin under the previous $11 billion NBN deal. The outcome of this dispute was a win to Telstra and a potential liability for NBN Co of over $200 million over the life of the agreement.

Telstra has been in the box seat since the 2011 document came into light and the reworked deal now hands the telco further opportunities to line its pockets.

The delays to the FTTP rollout due to the need for asbestos remediation should have given NBN Co a taste of things to come and just how much NBN Co has learned from that lesson remains to be seen.

Telstra takes control

The deal struck on December 14 brings Telstra and NBN Co together in what will be a very long engagement and the euphoria shown by Thodey, Morrow and the Minister for Communications Malcolm Turnbull on Sunday hides the underlying problems for the NBN that are contained in the new agreement that will surface in 2015.

For Thodey 2015 will be a year in which he can revel in the success he has had taking the government and NBN Co to the cleaners and Telstra is evidently working on a roadmap to put its NBN billions into action.

Telstra will use the rivers of gold provided by Turnbull to grow the company over the next decade, a process the telco’s critics say will come at the cost of competition in the telecommunication industry. By the time a future Coalition government privatises the NBN, Telstra will be in a much stronger financial position and is certain to take control of NBN Co’s key assets.

The expensive national Telstra Wi-Fi rollout has been timed to position Telstra as the telco that offers the widest range of connectivity options and for Telstra the additional benefit of the national Wi-Fi network will be for data offloading from the next generation of mobile devices that will have the capability to seamlessly handover between mobile and Wi-Fi networks, thereby reducing congestion on the mobile networks.

Meanwhile, in a move that is certain to portray Telstra as the machine-to-machine telco of choice to local and international corporations, the telco has entered into a deal with the ground breaking Tesla Motors to provide Model S cars with network connectivity for its infotainment, mapping and remote diagnostic systems.

Telstra’s expansion in the key backhaul and international undersea cable markets is also underway through its potential acquisition of Pacnet and the partnership with NZ’s Spark and Vodafone to build a new Trans-Tasman telecommunications cable in 2015. Australia already has some of the highest backhaul prices in the world and Telstra’s dominance in this market will only result in prices increasing.

Earlier this week, the Australian Competition and Consumer Commission (ACCC) chairman Rod Sims supported Telstra’s increased involvement in the NBN moving forward when he said "Getting Telstra involved makes perfect sense, no doubt about that.”

Sims went on to highlight the ACCC’s role in ensuring that Telstra does not take advantage of its increased involvement when he said “the issue that we all have to keep an eye on is what information they get relative to their competitors. It's crucial that NBN make information available to everybody at the same time."

However, at some point in 2015 the government will try to force through changes to the current regulatory framework in what it calls “fine tuning the regulatory framework” and shift telecommunications competition regulation from the ACCC to a new agency that will be more compliant to the Coalition’s view of how telecommunications competition regulation should facilitate Coalition policy. The exact reasons for why this needs to be done remain clouded in secrecy, but we will no doubt hear a lot about the need for increased competition, openness and transparency from the government.

Don’t step in quicksand

Communications minister Malcolm Turnbull has been steadfast in extolling the virtues of multi-technology mix NBN, regularly rolling out information on how the strategy has paid dividends in other geographies. In the week before the Telstra-NBN Co agreement was announced the minister yet again quoted a list of companies that he claims have adopted a multi technology approach to building a NBN. However, let’s bear in mind that the two companies that he most often quotes British Telecom and Deutsche Telecom have now begun or are about to begin FTTP rollouts.

There’s nothing wrong in highlighting the many companies that commenced FTTN rollouts in the early 2000s including British Telecom and Deutsche Telecom but it’s wrong to use these and other companies as examples of why Australia should rollout obsolete technology.

Turnbull would have seen the news that just two days before the signing of the Telstra NBN Co agreement, the German Ministry for Economic Affairs and Energy in a report “Monitoring Report: Digital Economy 2014” stated that Germany is lagging behind on the availability of future-proof FTTH/B broadband infrastructure. The report highlights that copper technologies like vectoring are not sufficient on a mid- or long-term basis and that the lack of high-speed broadband connections is anti-competitive preventing new companies from establishing themselves in the telecommunications market.

The report goes on to urge the “political decision makers to accelerate the deployment of future-proof broadband infrastructure.”

2015 will be the international year of FTTP and the gigabit race will heat up as major telcos seek to cement market share. For Australia however, we have opted to miss the opportunity to ride on the wave of investment and innovation that all fibre access networks will bring.

Malcolm Turnbull may have successfully re-engineered the first phase of the NBN process but make no mistake, the MTM NBN will remain a thorn in his side for some time to come.

As for Labor, it’s unlikely to release a new broadband policy in 2015 with opposition communications spokesman Jason Clare preferring to wait until the lead-up to the 2016 Federal election. If the Victorian Labor’s strong and clear policy to prevent the East-West road link is anything to go by, voters are receptive to early, clear and strong statements by opposition parties to bring about the end of wasteful government projects.

Labor’s strategy is likely to further coalesce around that dynamic as NBN Co gears up to deliver the network on time and budget.

NBN Co to get on with the job

For the first half of 2015 NBN Co will continue to build momentum and be ready for the ACCC’s stamp of approval on the new agreement. When this occurs we should expect to see a flurry of new NBN connections using FTTN and HFC in the second half of 2015 as the FTTN rollout commences in earnest and the HFC networks are slowly shifted onto the NBN.

But NBN Co will need to resolve the issues surrounding telecommunications and legacy equipment connections to the NBN. The 'shambolic' state of NBN connectivity identified in Willunga, South Australia has yet again highlighted the need for NBN Co to find a way to work with service providers to ensure that customers are not disappointed in the transition to the NBN.

2015 will also see councils and local communities that are to be provided with second-rate connections to the NBN under the Coalition’s NBN plan, take the initiative to invest in fibre and Wi-Fi as a means to enhance telecommunications capability within their community. Innovative recent fibre solutions such as the self-install fibre optic home networks from Germany’s Huber and Suhner that have been used in towns such as Marburg, Germany provide a real alternative for Australian communities.

For some in NBN Co the Telstra NBN Co agreement will be seen to be what it really is, an agreement that was designed to prevent NBN Co from achieving outcomes that monetise the NBN and limits NBN Co’s ability to offer wholesale products to retail service providers that service business, industry, mining and operators of vehicle fleets.

By the end of 2015 we should expect to see connections to the NBN rise significantly and NBN Co will be well on the path to connecting more than two to three million new customers to the NBN by the end of 2016.

The shift in responsibility for infrastructure remediation from Telstra to NBN Co, under the new agreement, is likely to be one source of ongoing disagreements. The scale of this amendment to the original agreement is likely to take years to identify but nevertheless it is an audacious outcome for Telstra.

NBN Co’s engineers will be perplexed in 2015 because they will look at the HFC networks and be determined to upgrade the HFC networks to provide 100/8 Mbps before the HFC networks are connected to the NBN. No doubt Telstra will want this outcome as well because it provides an opportunity to charge NBN Co for the upgrade and provide an opportunity to improve the infrastructure for Telstra’s business, mobile backhaul and Foxtel services that will continue to operate over the HFC network.

But for NBN Co an awful lot now depends on Telstra and there’s likely to be some frustration at NBN Co as Telstra continually reminds NBN Co staff that it is now in control of the NBN rollout and will move the process forward at its own pace and in such a way as to maximise the rivers of gold.

Can both find a way forward without all-out war breaking out before the third act begins?

Mark Gregory is a Senior Lecturer in the School of Electrical and Computer Engineering at RMIT University.