NBN BUZZ: It's tough at the top

NBN Buzz is a weekly wrap up of everything that's going on with Australia's biggest ever infrastructure project. For previous editions go to our href="http://.

Change at the top

The major management shake-up at NBN Co in the wake of the $11 billion deal with Telstra has reignited fears of NBN detractors that the company responsible for its rollout doesn't have its house in order.The NBN Co is now on the lookout for a new chief financial officer after the resignation of  Jean-Pascal Beaufret yesterday. The last time there was a dramatic management shuffle at NBN Co was in April this year when the head of construction Patrick Flannigan stepped down from his position,  after NBN Co walked away from a hotly disputed nine month $14 billion contract tender process. Flaningan's departure after the bungled tender process raised calls of mismanagement and Beaufret's departure has given the opposition spokesman Malcolm Turbull more ammunition to maintain the Coalition's momentum against the Gillard government.

However, there are plenty of question marks on whether the Beaufret resignation is really indicative of things falling of the rails behind the scenes for NBN Co. The Australian Financial Review reports the move was designed to quell any further criticism on the controversy surrounding French telco Alcatel, where Beaufret and NBN Co boss Mike Quigley were previously two of top three executives. Beaufret was the director of Alcatel Standard from 2002-2007 and neither he nor Quigley told the government about the corruption investigation into Alcatel before they came on board the NBN. Both men strenuously denied any knowledge of the corruption and quite frankly there has not been a single shred of evidence so far that hints at any wrongdoing on their part. NBN Co said the Alcatel scandal has nothing to do with Beaufret's decision, only that the 60 year old wants to retire from public life. It also added the reshuffle is all part of its transition to the next stage of getting the NBN built. However, it will no doubt admit that the Alcatel issue has proven to be a  considerable drain of time and resources. According to The Australian, correspondence from NBN Co's Freedom of Information department to Liberal senator Simon Birmingham indicate 3764 emails were sent or received by Quigley, Beaufret and the head of the company's government relations unit or chief legal counsel, relating to their time at Alcatel. It's a distraction that NBN Co could well do without. As for Turnbull, he may be using the reshuffle to highlight the purported chaos within the ranks of the NBN Co but it really does seem like another futile attempt on his part to get the government to conduct a rigorous cost-benefit analysis on the entire project. The chances of that happening are slim to none but it does give Turnbull a handy avenue to continue his fight against Communications Minister Stephen Conroy, which has so far this week amounts to petty scare mongering.  

Turnbull's scare tactics  

With global economic jitters continuing to hold sway and Australian jobs getting the chop left, right and centre it's easy to see why the NBN has not had the type of airtime it's become accustomed too. However, before the management reshuffle came about the battle ground this week was the issue of whether the NBN Co should be allowed to raise prices for most of its services by up to five per cent per annum above the rate of inflation for the next 30 years. The idea was suggested in a discussion paper released last month on the Special Access Undertaking (SAU) that is to be lodged with the Australian Competition and Consumer Commission (ACCC) and predictably led to sniping between Conroy and Turnbull. The opposition spokesman has pounced on the certain elements of the discussion paper to raise the spectre of NBN Co becoming a monopoly with the freedom to raise prices dramatically once the network is built. However, one wonders if the fiery rhetoric, that Turnbull has gotten used to spouting by now,  is just a tad overdone and really another NBN-related storm in a teacup. Turnbull has warned the undertaking sought by NBN Co opens the door for it to bump up prices for everything apart from the entry-level 12 megabits per second (Mbps) service, at a time when broadband prices have been going down.

“So what that is doing is, a government spends $50 billion of taxpayers' money on a massive broadband network, eliminates all competition with it, and then the Australian public get what? They get access to speeds equal to today's ADSL 2 at prices which are similar or slightly higher than what they are paying at the moment,” Turnbull says in his press release.

“But in terms of the super fast speeds — up to 100Mbps — the speeds which we were told were going to be the Nirvana, the Holy Grail of internet access, those prices are going to go up, and up, and up.”

More importantly, Turnbull claims that it flies in the face of the Gillard government's commitment that NBN Co is not going to end up as another Telstra with a carte blanche on prices and will actually lower prices over time. Conroy has played down Turnbull's claims on pricing as hot air, saying that he has full faith in the NBN Co's business plan and as iTWire's Stuart Corner opines in his piece the SAU is in no way indicative of inevitable price rises in the future. If anything it's more of an insurance policy to settle some of the concerns that NBN Co evidently still has about the number of customers that will sign up for its services.      

The NBN Co maintains that despite the heavyweight deals with Telstra and Optus it needs the pricing protection to ensure it has the necessary flexibility if demand doesn't meet expectations.

“Demand uncertainty remains in relation to issues such as price payable by end-users for broadband services over time,” NBN Co said.

The company also rightfully points out that the entire SAU exercise was a voluntary one, designed to provide transparency to the industry with regards to price-setting to achieve cost recovery over a period of 30 years and includes a commitment to limit any possible increase in the price of key services to “less than CPI over the 30 year period."

The CPI plus 5 per cent "buffer" is an inflation hedge designed to protect consumers within any financial year from a significant price hike if inflation rises in Australia. To take NBN Co to task over what looks like a sound contingency plan seems a bit of stretch  for Turnbull  and anyway the final call rests with the ACCC and it is unlikely to approve anything that puts that kind of pricing power in NBN Co's hands.  

Exetel, Dodo named and shamed

Meanwhile, NBN Co wasn't the only one facing the coalition's wrath with former Optus executive and Liberal MP for Bradfield Paul Fletcher taking low cost carriers Exetel and Dodo to task. Fletcher told the federal parliament on Tuesday that the government's move to cite the discount operators' proposed sub-$40 NBN plans as an example of how the NBN is promoting competition and bringing down prices is spurious. According to Fletcher, Dodo has a poor customer service record while Exetel, with a market share of 0.9 per cent, is far too small to be taken seriously. His point is that if everyday users are hoping for good service then they will have to go with the more expensive plans provided by bigger ISPs. This is the first time individual ISPs supportive of the NBN have been called out and it looks like Fletcher is following the Coalition's game plan, which is now focused on raising pricing fears.  

Helen Coonan's OPEL lament  

Sticking with Liberal politicians, former Howard Government Minister of Communications, Helen Coonan, bowed out of the senate this month but not before taking one final shot at the NBN. Coonan, who held the communications portfolio from 2004 to 2007, used her valedictory speech to lament the fact that the Coalition's OPEL network would be up and running for rural Australians by now if it wasn't for Kevin Rudd kicking John Howard out of office and sacrificing OPEL for the NBN. She also displayed the characteristic love that Liberal politicians seem to have with wireless technology and the perennial fear of the fibre being superseded by a new technology. Not only has this debate now been put to rest, despite occasional relapses by Malcolm Turnbull and his South Korean examples, the irony here is that Coonan's beloved OPEL with all its wireless chops would probably have been outdated by the time it was rolled out.

Finally, wireless technology actually got some airtime in NBN Co's submission to the ACCC dealing with Telstra's structural separation undertaking, in what can be described as its first admission on the potential impact of wireless on the NBN. The company has told the competition regulator that wireless services in some areas could be comparable to what the NBN's basic service would provide. The government has always insisted that wireless technology is complementary to fibre and not a threat, but while that claim does broadly stand up to scrutiny, it looks like in some areas wireless services providers will be able to go toe to toe with the NBN's entry-level speed.  The admission does put a new spin on NBN's insistence on Telstra not promoting its wireless services as a viable substitute to fibre.