TPG Telecom’s plan to connect 500,000 apartments to a fibre to the basement network of its own has seemingly hit a roadblock.
The news has put the brakes on TPG shares and perhaps a message for TPG boss David Teoh from the Communications Minister Malcolm Turnbull to apply some brakes to his FTTP aspirations.
Whatever the intention, it’s certainly a curveball for the Coalition government.
Given that TPG’s network will directly compete against the National Broadband Network for high-value urban customers and the fact that it will get its network rolled out a lot sooner than NBN Co, the telco’s aspirations were always going to come under some scrutiny.
However, Turnbull’s statements to the Australian Financial Review this week strike a discordant note, one that essentially clashes with the Coalition’s stipulated policy objective of infrastructure competition.
His insistence that a final decision on whether TPG can proceed with its plans will be made once the cost-benefit analysis is complete is also interesting.
The cost-benefit analysis will take into consideration the issue of access competition, but to hold the final decision until it’s completed creates regulatory uncertainty – not just for TPG but also other players in the sector, particularly Optus.
The fate of TPG’s $165 million plan rests on whether Malcolm Turnbull is disposed to tweaking the anti-cherry picking legislation instituted by the Labor government.
That legislation was designed to ensure the long-term viability of Labor’s NBN. But after going hard on the mantra of infrastructure competition, while in opposition, the Coalition government finds itself between a rock and a hard place.
TPG is relying on a provision within the existing regulation that allows networks built before 2011 to be extended by less than a kilometre. Closing the loophole TPG is hoping to exploit may marginally benefit NBN Co, but it weakens the case for infrastructure competition that Turnbull has propagated so assiduously.
Abandoning that narrative now seems wasteful, especially when there’s evidence that infrastructure competition does help high-speed broadband deployment and take up, says Informa telecom analyst Tony Brown.
“Whether it’s South Korea, Hong Kong or Japan, even in Japan where NTT has a de-facto monopoly on the fibre network, where it’s very hard for other operators to offer services on their network. The rival operators and the cable operators are all upgrading their own networks, so there’s massive infrastructure competition taking place,” Brown says.
“In the three big markets where we have ubiquitous high-speed broadband, all of the development is being fuelled by infrastructure competition.”
That dynamic isn’t necessarily applicable to Australia but the likes of Optus, Vocus and Telstra, have the fibre footprint to follow TPG’s lead. Having said that, it’s unlikely that either of the three, despite Optus’s stated interest, will actually be keen to invest once TPG has cherry-picked the most valuable customers.
What TPG is pursuing is well in line with the Coalition’s philosophy and it has the first-mover advantage, which it will try to exploit to the fullest. It might not get to connect the full 500,000 apartments, but it will certainly have a go at picking up the most valuable ones.
That will hurt NBN Co and Telstra’s bottom line. This suggests that TPG won’t take a no from the government lying down.
Kicking the can down the road
The minister’s insistence to delay a final decision until the cost-benefit analysis is puzzling. The bottom line is: do we want infrastructure competition or not?
Faced with an uncomfortable question, Turnbull is seemingly playing for time.
Informa’s Brown says that kicking the can down the road could actually complicate matters.
“Delaying this decision could actually make things worse not better because, in the meantime, TPG will continue its fibre build and the longer it takes for the Coalition to deliver its decision, the more agitated it will become,” Brown says.
The longer the uncertainty, the fiercer TPG’s retort will be. It’s a regulatory stoush that the Coalition can’t afford.
That’s the reason why Turnbull’s statements to the AFR are less a declaration of intent but rather a message for TPG boss David Teoh to cool his heels.
Never a sure bet
TPG’s decision to leverage off its existing footprint pretty much caught everyone on the hop.
Given that it was playing straight out of the Coalition’s playbook, many in the market assumed that TPG’s plan was a sure bet. The doubts cast now by Malcolm Turnbull have tempered the optimism, that some analysts say was too frothy too begin with.
Independent telco analyst Chris Coughlan says that despite TPG’s solid delivery track record, extending the network to apartments is not an easy job.
“This is a test case for the Coalition’s policy as far as competition of access is concerned, but I think TPG’s plans will be somewhat difficult given that everybody else who has tried to do this has had difficulties,” Coughlan says.
“This is not a new thing and the processes of the past have been fraught with problems.”
A fair point, but TPG has got a substantial lead on the competition and is unlikely to take a backward step. However, that doesn’t mean it doesn’t have options.
One obvious solution is that TPG opens up its network to others on a wholesale basis. TPG boss David Teoh may be inclined to accept that, but it may come with some strings attached. TPG could claim a period of exclusive access before opening up the network to the competition.
Alternatively, Teoh could well ask NBN Co if it could just put some money on the table and just take it of their hands.
There are multiple scenarios at play her,e and Malcolm Turnbull faces a difficult choice.
Ditching Labor’s NBN may be more cost-effective but the Coalition’s NBN opens a Pandora’s box of complexities. How to temper TPG’s aspirations without doing a back flip on policy is just the first of many tough tasks ahead for the minister.