TPG fights to keep FTTB alive

TPG Telecom’s decision to take the infrastructure access competition mantra to heart was always going to cause complications for NBN Co and so far the TPG has played its hand well. Whether TPG manages to roll out a fibre-to-the-basement (FTTB) network remains to be seen but the telco isn’t likely to give up without a fight.

The panel running the numbers on the cost-benefit equation of the National Broadband Network has the unenviable task of solving a regulatory Rubik’s cube that underpins the viability of NBN Co.

Of course, there really wouldn’t be a mess to clean up if Labor’s preferred fibre-to-the-premises (FTTP) model was allowed to proceed. But we are well past that now.

The audits and reviews initiated by Communications Minister Malcolm Turnbull are designed to consign Labor’s model to the history books, but more importantly provide a road map to ensure that the whole thing doesn’t actually blow up in his face.

While it’s impossible to predict just how big a hit NBN Co is going to take if TPG gets the go ahead with its FTTB plan, it looks to be significant enough to throw the cross-subsidy model into turmoil.

Not because TPG’s plan to connect 500,000 or so premises will break the bank for NBN Co, but rather the far scarier prospect of Telstra, Optus and iiNet deploying their own networks.

For its part, TPG has told the committee that the current maths around NBN Co’s economic viability may not add up but the real competitive threat isn’t its network.

TPG says in its submission that "The economics of the NBN Co are and will continue to be strained and considers that the Panel’s working assumption of 'operation on a commercial basis' may be unrealistic and should be revisited."

There’s no guarantee that TPG will get the 500,000 customers given that many have the HFC option available to them and arguably NBN Co can target a much larger number of households than TPG can.

But there’s a twist.

TPG can get its network up and running a lot quicker than NBN Co and once those high-value customers are gone it's slim pickings for NBN Co.

This is one of the biggest challenges facing the panel led by Michael Vertigan: how do you keep the subsidy model alive without suffocating infrastructure competition?

Implementing anti-competitive laws may preserve NBN Co’s bottom line but as TPG says in its submission to the committee, infrastructure-based competition delivers the best outcome for consumers and as a government funded and owned entity “the NBN Co is never likely to be run as efficiently as a private enterprise".

NBN Co executive chairman Ziggy Switkowski and incoming chief executive officer Bill Morrow may beg to differ, given how much effort is purportedly being expended to make NBN Co a leaner, more efficient machine.

When you invest your capital you want to make sure that the deployment is speedy and the product gets to end users at a good price point. TPG has a good track record of competing effectively on price, and it has made its position clear: it’s unwilling to build anything more than it needs to unless there’s funding or subsidy put on the table by the government.

Plotting a course out of this regulatory fog looks set to keep the Vertigan Review Panel and the telecom sector on its toes. The final outcome could well determine our broadband future.