NBN BUZZ: Turnbull's tired treatise

With the final NBN regulatory framework now out in the open, Turnbull and the telcos need to rethink their approach to the project.

NBN Buzz is a weekly wrap up of everything that's going on with Australia's largest infrastructure project. For previous editions visit our NBN Buzz page.

The NBN blueprint

NBN Co has released the second half of the regulatory blueprint that lies at the heart of how the network will be governed over the next three decades. The unveiling of the fifth, and presumably  the final, incarnation of the Wholesale Broadband Agreement (WBA) has been promptly followed by the release of the Special Access Undertaking (SUA) and despite the apparent concessions from NBN Co on a couple of issues the telcos aren’t exactly jumping with joy. Then again, they were never really expected to.

The SAU lays down the regulatory and pricing framework  for the next 30 years and the agreement lodged with the Australian Competition and Consumer Commission (ACCC) this week has had a bit of a tune up since the publication of the discussion paper in August.  Prices for the key wholesale services are to stay on ice for the first five years of operations and wholesale price increases will be limited to half of the yearly inflation (CPI). What that means is that prices for services provided by NBN Co are either going to stay flat or fall over time.

This is an important concession, because there were concerns that NBN Co was looking to cement a position that would have allowed it to raise wholesale prices on existing products by CPI plus five per cent.  The proposed price hike clause has been given the boot in the new undertaking which also proposes that NBN Co’s revenue will be capped to a point where it only recovers its incurred costs. The plan involves a regulatory rate of return on its assets of 3.5 percentage points above government bond rates. Government 10-year bonds are currently hovering around the 3.95 per cent mark.

There are, however, a couple of caveats in the revised document. There is the provision for a clause that will allow NBN Co to request ACCC approval for an exception to the annual price increase limit in certain specific cases and it can also set the prices for new products it offers in any one year.

No respite on regulatory oversight

The other concession from NBN co has come on regulatory oversight, with the ACCC given powers and functions to reach agreement between NBN Co and retail service providers on non-price terms or the introduction of new prices. Just how much bite the competition watchdog has when it comes to NBN Co has had the telcos in a spin for a while and the revised SAU seems to have had little effect in calming them down.

Perth-based iiNet has so far proven to be the most vocal about its concerns, with chief regulatory officer Steve Dalby telling The Australian Financial Review, that he was worried the ACCC could only become involved in dispute resolution prior to execution of an agreement. Dalby’s point is that the regulator will be joining the party far too late and with a lengthy resolution process causing supply uncertainty, ISPs will have no choice but to sign up to unfavourable terms. He has also pointed out that access seekers have not been provided an avenue to lodge a dispute once a supply contract is in place. NBN Co says that the SAU-WBA combo provides all the guarantee a RSP needs to come on board. 

Telstra and Optus have said nothing so far on the SAU and realistically the telcos will have plenty of time to have their say once the ACCC starts the consultation process on the undertaking. I suspect that what we are in for is a rehash of a familiar tune and, as Paul Budde pointed out in his piece yesterday, the non-Telstra telcos may be doing themselves more harm than good with their bickering, which is just plain counterproductive. The current platform put forward by NBN Co may not be perfect but it’s a good place to get things started.

 As far as consumers are concerned, NBN Co’s promise on wholesale price doesn’t necessarily translate into cheaper internet because there is no guarantee that retail service providers would not increase retail prices independently of wholesale prices. That is a very real possibility and let’s keep in mind there are those clauses that will potentially allow NBN Co to raise wholesale prices if the need arises.

Turnbull’s tired treatise

The release of the framework provided shadow communications minister Malcolm Turnbull with an opportunity to renew his attack on the project and NBN Co. The latest assault came via a 3000 word essay on his blog and by his own admission the key sticking points are still the same. However, there is a new angle as well with an attempt to portray NBN Co as a shadowy, secretive initiative - a “cross between the Kremlin and the Church of Scientology” that revels in keeping the public in the dark.

Turnbull has questioned NBN Co's accountability and transparency and labelled a number of the financial projections in the corporate plan obsolete. He points out that the Telstra and Optus deals will cost NBN Co a lot more than expected and it may still need to spend more than six billion dollars to cover its operating costs.

The censored Greenhill Caliburn report released by the federal government last month comes under scrutiny and Turnbull has again asked his Labor counterpart  to explain why replacement costs and other capex is not considered a part of the cost of the NBN.

"I have bad news for the Senator: Capital spending on maintenance and network upgrades is part of the cost of the NBN, as it is part of the cost of any enduring piece of infrastructure," Turnbull said.

"And what Greenhill Caliburn and NBN Co's own figures reveal is that 'replacement capex' after the initial network is connected amounts to over $100 per connected premise per year – roughly the same as maintenance costs on the current copper network. So much for 'future-proof' in terms of reducing upkeep costs."

Fears of cost blowouts, unrealistic rollout targets and take–up delays all get a run in the essay but the whole thing seems tired. Turnbull takes a few pot shots at NBN Co, rattles out figures, which by his own admission are hypothetical, and while I agree that some of the issues raised by him warrant scrutiny, there is precious little in the way of insight on the Coalition’s own plans.  By the way, NBN Co is currently revising its corporate plan and is set to release the updated version next year.

New product pipeline and the first Wi-Fi town

As mentioned earlier, NBN Co’s decision to muzzle wholesale price hikes does not extend to new products that may find home on the network and to that end the SAU also lays down the guidelines of the Product Development Forum. The forum is designed to engage customers on new product ideas and drive future investments in network changes which may be required to implement them. However, participating customers will be required to agree to a set of clauses to limit their claims to copyright and intellectual property if their idea is picked up by NBN Co. According to the company’s SAU, customers must agree in writing to hand over the authorship rights to NBN Co to ensure that the potential product can be offered to all service providers.

Finally, Gunnedah in New South Wales has taken the crown of the first Wi-Fi town in Australia. What’s really got people excited is that the good folk of Gunnedah now have access to high speed internet at, what is touted by News Limited papers, is a fraction of the $40 billion the NBN will cost.

The Gunnedah council teamed up with TUPS Company to the service using fibre-optic cables laid down three decades ago, and TUPS managing director Geoff Peach told the Daily Telegraph that it’s a cost saving option that NBN Co should consider.

Apart from pointing out that the exercise of comparing a NSW town to the whole country is just plain silly, the premise of the comparison is faulty. Gunnedah’s service is predicated by the fact that it had an existing fibre optic network running under its streets and without the backhaul service, which the NBN will provide, there will be no wireless network that the Daily Telegraph was so pleased to crow about.