The unintended consequence of NBN Co's FTTB lifeline

NBN Co is getting ready to pick up the pace of getting apartments connected to the National Broadband Network (NBN), with plans to connect up to 6000 apartments by the middle of this year.

The multi-dwelling units (MDUs) are spread across New South Wales, Victoria and the ACT and with the spectre of its competitors cherry-picking lucrative areas put on the backburner for now, NBN Co will make sure that it's fibre-to-the-basement (FTTB) footprint is extensive enough to ensure that its not discomfited by the likes of TPG Telecom.

Connecting apartments has been a long running headache that has tormented NBN Co since its inception. Under Labor's fibre-to-the-premise (FTTP) NBN, every individual premise was destined to get a fibre connection, an ambitious task that some NBN Co insiders now admit was doomed from the start.

Having said that, the shift to Coalition's multi-technology mix NBN – which will see fibre taken to the block and individual units connected via vectored VDSL over existing internal copper - didn't exactly clear up matters either. Instead, the change in methodology immediately led to TPG Telecom unveiling its fibre ambition and make life decidedly uncomfortable for NBN Co's new management.

With TPG's FTTB network poised as an existentialist threat for NBN Co, it has taken some clever maneuvering by Communications Minister Malcolm Turnbull to engineer a solution to scuttle, albeit temporarily, TPG ‘s momentum and earn NBN Co some breathing space.

NBN Co's new-found confidence in the MDU space, it's so called ‘head-start' as it prepares for the commercial launch of the FTTB product, owes a lot to Turnbull carrier license condition.

The condition was flagged by Turnbull in September last year, after the Australian Competition and Consumer Commission (ACCC) said that it will not stop TPG from connecting apartments in the lucrative metropolitan areas to its FTTB network.

TPG was subsequently given until January 1, 2015 to have its wholesale product ready for sale, as part of a policy paper released by the government in response to the recommendations made by the Vertigan Review in October.

With TPG complaining that it has been given insufficient time to have a wholesale service ready for the market, it had little choice but to put its FTTB service on ice.

The gambit has managed to have the desired effect for now, while TPG navigates the new regulatory waters NBN Co can start pegging back the advantage TPG had gained through its opportunistic move in 2013.

TPG remedy riles industry

However, the carrier licensing conditions (CLC) put forth by the Department of Communications in October last year has evidently had some inadvertent side effects, if the submissions from the telecom industry are anything to go by.

The principal concern from the industry is that a gambit designed to curb TPG now threatens to engulf other industry players.

Vocus Communications is one telco that's clearly unimpressed by the license conditions and their unintended fallout.

“Vocus is very concerned that the proposed declaration has been drafted in a manner that unintentionally captures networks that provide wholesale services to other carriers or carriage service providers that have a residential customer base,” the telco said in its submission.

“In this regard, the proposed declaration exceeds the scope of Parts 7 & 8 of the Telecommunications Act 1997 (the Act). In this submission, we describe the reasons for our concern and suggest how it can be remedied.”

Telstra isn't entirely pleased by the unintended consequences of the conditions either, saying that the CLC should be focussed on the limited set of networks.

“We are concerned with the CLC's scope as drafted, as it would retrospectively capture networks that have been built in compliance with the existing Superfast Network Obligations and have detrimental consequences for Telstra's residential customers. This outcome would appear to be at odds with the Government's policy intent,” the telco said in its submission.

 “We are concerned that, as drafted, the scope of the CLC would capture existing Telstra networks. This would have a detrimental impact on our customers, and expose Telstra to a significant compliance burden (in order to retrospectively and regularly audit existing networks to confirm whether the 0.05% residential customer threshold has been inadvertently exceeded).”

Perhaps the most intriguing contribution comes from Tim McCullagh, the boss of independent telecom service provders Oziplex and Halenet, who bemoans that in its rush to protect NBN Co the government is willing to sacrifice the interest of operators other than Telstra and Optus.

“In the situation that you are trying to address you are taking away from TPG its shareholders and investors the right to leverage their asset and no where does it mention compensating TPG or any other company for that loss,” McCullagh says in his submission.

“This is being done not only to TPG but other companies like mine that have effectively had our asset devalued because of some misguided attempt to prop up the NBN. Why is it ok to prevent TPG, Telstra or any other company from realising the full potential of there assets.”

“In the Telstra and Optus case the previous government has compensated them for the loss of there investment in their HFC and copper networks but they did not compensate TPG or my company,” McCullagh adds.

As for TPG, it's asking for more time while it considers its next move and the issue of compensation – as proposed by McCullagh – may yet be a option for the telco.

TPG may have stopped adding new customers to its network, but that doesn't mean it needs to stop building its FTTB footprint, the extent of which could well be meaningful if the issue of compensation rolls into the picture. 

Malcolm Turnbull may have worked out a great way to give NBN Co breathing room on FTTB, but the rest of the telecom industry isn't happy to be caught up in the fallout.