TECHNOLOGY SPECTATOR: NBN Co's failed competition promise

It's hard not to lament the stranglehold that tier 1 carriers have over Australia's largest businesses when it comes to both network selection and service pricing. In my experience, most businesses, with an annual telco spend of between $250,000 to $25 million, are effectively faced with a network duopoly on fixed, data and mobile carriage and a monopoly on regional mobility services.

The result of the tier 1 network supremacy is a pricing regime that is antiquated and displays all the anti-competitive hallmarks of price gouging.

As the NBN is put together, my concern is that the network will miss two key areas that impact the existing hegemony and have a less than anticipated impact on competition.

Network

When I worked for British Telecom in London in early 2002, the Broadband Britain strategy (an equivalent to NBN but for xDSL services) included some innovative strategies to ensure quicker, guaranteed return on investment for providing internet access to regional areas. The strategies also meant a quicker roll-out of services to these areas.

One of the strategies that accelerated network roll-out and customer uptake was where BT would "green light” an exchange where the local council had signed up a certain number of users onto two-year contracts in advance. The users had a choice of plans, speeds and therefore costs, and when certain thresholds were reached, the exchange would be anointed for broadband.

For the council and locality, its citizens and ratepayers had complete control over its broadband destiny. If they wanted it, they would commit to it.

For British Telecom it meant that they could not only accelerate the roll-out of the network, but it guaranteed known levels of return on capital expenditure.

The other opportunity for local communities was that they could pay for the roll-out at a level of 50 per cent and BT would match that investment. This meant that certain areas with a manufacturing or education requirement, which may not get the sign up numbers, could use special funding to obtain network access because the local community would immediately benefit.

In Australia, we have no evidence that NBN Co (effectively BT for the NBN) has this approach to roll-out strategy, network uptake, or return on investment. For me, this is a great opportunity missed and will greatly increase the likelihood of the NBN becoming an investment with no foreseeable return.

Competition framework

The other area of great concern is the new competition framework and regulatory framework that will be in place around the NBN. What is not known is how one monopolistic framework (again driven by the "existing monopoly network”) will be replicated by a more nimble and level competition framework when the network (i.e. NBN) remains a monopolistic network.

The silence on this front has been damning. We need only look at the lack of traction in this space over the past five years when both Liberal and Labor governments missed a great opportunity to structurally separate Telstra.

The NBN has some de facto impact at structural separation, but who will ultimately control the NBN? Will it be NBN Co's board of management or its biggest clients? How will its wholesale customers, such as Optus and Telstra be treated equally with a small player who is state-based or even regional-based? What are the rules on bundling, cross-subsidisation, content packaging? The questions are wide ranging and so far definitive answers are yet to emerge.

Moreover, the real problem will be around service issues – provisioning, faults and restoration – that affect all carriers. The Telstra experience in the past was one where the telco's clients had preferential treatment in all service categories. The regulation states that for wholesale customers (including Telstra retail), it's a first come first serve basis. Telstra will tell you that it stridently upheld this requirement. But what happens on the ground, away from the desks of senior policy makers and decision implementers, is a very different story.

The concern for NBN is the same. If a small telco or ISP, who is effectively a small NBN Co client, has 5,000 customers and has a major fault, an hour before Telstra, who is an enormous NBN client, where are the resources going to be directed to have the network fixed? If the NBN has to pay service-level agreements to both parties for end-user downtime, we can quickly assume the answer. Accordingly, the strong will remain strong and competition is only an NBN Co concept.

Tony Simmons is the managing director and founder of The Full Circle Group, an independent telecommunications consultancy firm focused on telco expense costs and management. He was previously a lawyer for Minter Ellison, Telstra and British Telecom.