The head of internet service provider (ISP) Australia On Line has warned that smaller telcos will face up to 1500 per cent cost increases for infrastructure as a result of the competition regulator's decision to extend the National Broadband Network (NBN) to 121 points of interconnect.
"It would increase our costs fifteen-fold — not 15 per cent, but fifteen-fold. That is just unsustainable," Australia On Line CEO Michael Bethune told a parliamentary inquiry into the NBN in Melbourne last week.
The NBN business case originally planned 14 points of interconnect, where traffic is handed off from the NBN to the ISP's network. In response to concerns from backhaul providers that this would kill backhaul competition and strand a lot of their network assets, the Australian Competition and Consumer Commission (ACCC) ruled that there should be 121 points of interconnect (PoI). According to Bethune, Australia On Line currently connects to Telstra at seven points, with each of those points incurring a significant cost for the company, regardless of whether it has one or 1000 customers. He said that the 121 point ruling would increase the "base admission cost" for his company by 15.
"Currently, the situation of 121 points has escalated our costs such that our costs dwarf the additional revenue that the backhaul industry will get as a result of that, which would be maybe a third of our increase in costs," he said.
"We have looked at the minimum equipment we need at each location, and in order to use that equipment, we need to put that somewhere. That will be in a datacentre, and that datacentre at each of those points of interconnect might simply be a Telstra exchange that the NBN have chosen to site their equipment in. We will need to put that in a computer rack," he added.
Twelve inches of space to rent in a Telstra exchange is "some of the most expensive real estate", according to Bethune, at around $1000 per month. He said that across the 121 points of interconnect, it would all add up.
"The network costs today, I believe, are about $40,000-plus, and we are talking about $700,000-plus. That is monthly, so we would be signing a cheque every month for $700,000-plus, and that would be a cost that we would be paying irrespective of whether we had one customer on those points of interconnect or not," he said.
Rather than providing metro-equitable prices in regional areas on the NBN, Bethune said that the cost of backhaul and additional infrastructure would lead to higher prices in places outside of metro areas.
"Right now with Telstra on ADSL, I face the same cost to service a customer in Longreach as I do one in Vaucluse, and I find it bizarre that the NBN will terminate that situation and will restore the relationship between distance from the capital city and the wholesale cost to service, after spending $39 billion," he said. "It is kind of paradoxical that the bandwidth will be there, coming to their front door, but, for instance, in Ballarat or Bendigo, ISPs like ourselves will be vacating that market and not providing sufficient competition to keep those prices low."
Bethune warned the committee that unless the ACCC revises its points of interconnect decision, Australia On Line and other small ISPs may be forced out of the industry.
"I think that we will probably be vacating the industry, and we have been in the industry since 1994, so I would make the point that it is kind of ironic, isn't it, that a large broadband network that is supposed to be open access and equitable could actually be the thing that forces us out," he said.
"The [global financial crisis] did not force us out, the tech boom did not force us out, but the NBN might."
Australia On Line is not the first to raise concerns about the ACCC's interconnect decision; Internode founder Simon Hackett has argued that this ruling, coupled with the capacity charge built into the NBN pricing model, will lead to higher costs for ISPs to provide services on the NBN, and that this would be reflected in the pricing that it offers to customers. After Internode announced its NBN pricing last month, the ACCC announced that it would investigate pricing.
NBN Co's head of product development, Jim Hassell, has previously said that small ISPs can either choose to go regional, focusing their investments on those areas where they will make a profit, or rely on a network of wholesale aggregators. Telstra, Optus, AAPT, M2, Platform Networks and Eftel have already come forward, saying that they will be wholesale aggregators on the network.