NBN tweaks won't break the Telstra stranglehold

The telecommunications industry is up in arms about Telstra's proposed wholesale price increases, amounting to some $50 million a year, and their discontent is understandable. 

While Telstra may be the focus of their anger, the real culprit lies elsewhere. This is what happens when you start fiddling around with previously agreed industry arrangements, like the Coalition government is doing with its proposed multi-technology mix (MTM) National Broadband Network (NBN) solution.

So much for a faster, cheaper and better broadband solution promised by the communications minister Malcolm Turnbull with such gusto prior to the last federal election.  

What has become abundantly clear since then is that there's no indication that the MTM can be introduced quickly. And as for cheaply, because of the delays in getting the plan together Telstra (or NBN Co for that matter) will now have to maintain its ageing copper network longer (perhaps ‘forever') and the maintenance cost of that old copper network will only increase over time.

This is the key reason why telcos around the world are now installing fibre networks.

For the moment Telstra remains a vertically-integrated monopoly and because of the government's NBN policies it's not under any pressure to start rolling out fibre in order to reduce these maintenance costs.

The original plan was for the copper network to be closed down and for the new fibre network to be operated under a structurally-separated wholesale arrangement by NBN Co. All of this is now in limbo, and under these circumstances Telstra can indeed build the case for an increase in charges for the maintenance of its copper network.

As the copper network continues to age Telstra's demands will no doubt increase over time.

Even if Telstra hands over its copper assets to NBN Co, copper (and HFC) maintenance costs will only increase. In all reality the extra costs will have to be added to the costs of the MTM plans. These are a direct result of the changes in government policy, regardless of whether the costs will have to be borne by Telstra's customers or by the government.

Structural separation question mark?

This also means that the effectiveness of the structural separation legislation is now under question. Based on the original plan Telstra's dominance would dwindle as the copper network was shut down, but this is no longer necessarily the case – at a minimum this situation is very unclear and will be so for perhaps another year.

The industry is quite correctly addressing the effectiveness of competition under this ‘interim situation' as well as the longer term effectiveness of the structural separation under the new government policies – yet to be revealed.

What the proposed price increase shows is that we are rapidly reverting to the situation the industry had to endure over the last 20 years, where, because of its dominance, Telstra was able to prevent any form of effective competition until the ACCC finally lowered the DSL network access prices to cost levels.

As a side comment, it is now easy for the government and its supporters to blame the Australian Competition and Consumer Commission (ACCC) for the low wholesale access costs to Telstra's DSL network (at least in metro areas), but that decision needs to be judged in the context of Telstra's obstructive behaviour between 1996 and 2008 – when those regulatory changes finally became effective and DSL-based broadband competition in the cities started to develop for the first time.

The best outcome for Telstra

If we go back to that situation then we can only expect these old battles to start all over again. Those were the days when, at any given time, there could be 20 or more cases in front of the ACCC with industry complaints about Telstra's anti-competitive behaviour in the market.

Do we really want to go back to that? I am sure even Telstra would answer this in the negative.

As I have been predicting since 2009 when the Coalition first launched its opposition to Labor's NBN plans, this is a very complex matter. Once you unpick one element the whole plan will unravel.

These plans for price increases related to the copper network and the renewed discussion of the structural separation of Telstra are some of the results of this unravelling, which so far had not been recognised by the industry and the government.

As Telstra has changed under David Thodey, it is highly unlikely that the telco would welcome a renewed period of industry conflict. It's in its long-term interest to build a modern, forward-looking company. Telstra supports a Fibre-to-the-Premises (FttP) rollout under a structurally-separated regime and going back to those old days of constant conflict is certainly not in its interest.

This is also something it needs to take into account in its negotiations with the government in relation to the MTM plans. The company can be a guiding force to a better outcome for the NBN, let's hope it will also take into account the national interest and opt for the long-term, modern, forward-looking solution for the whole industry.

This is an edited version of a post originally published on October 31. Paul Budde is the managing director of BuddeComm, an independent telecommunications research and consultancy company, which includes 45 national and international researchers in 15 countries.