Retail plans reveal NBN Co hypocrisy

Retail plans reveal NBN Co hypocrisy

Summary: The wording of the draft NBN legislation, now up for public comment, revealed the surprising possibility that NBN Co could become a telecommunications retailer under certain circumstances, suggesting massive government hypocrisy that could upset the tenuous balance of Australia's telecommunications market.

SHARE:
30

No matter how inured you have become to political backflipping, the wording of the draft National Broadband Network (NBN) legislation gives pause for thought.

Although many of its goals seem consistent with the government's stated NBN policy, its allowance for NBN Co to operate as a retail provider is the height of hypocrisy.

On the one hand, we have the legislation designed, as the explanatory notes (PDF) repeatedly assert, for an NBN Co that offers only wholesale services.

This has always been the stated and logical structure for NBN Co: any other structure, such as creating a vertically-integrated wholesaler and retailer like was done with Telecom all those years ago, would dramatically change the nature and direction of a market that has been regulated for competition for 13 years.

Stephen Conroy

Stephen Conroy
(Credit: Liam Tung/ZDNet.com.au)

Yet the legislation (read it here) introduces a complete policy reversal with the revelation that the minister can, on his whim, authorise NBN Co to provide services directly to certain end users, for example, government agencies.

In other words, NBN Co is exclusively a provider of wholesale telecommunications services, unless the minister decides it's not exclusively a provider of wholesale telecommunications services. How's that for commitment? In as-yet-unspecified circumstances, the company will apparently be able to provide government departments and other, as-yet-unspecified parties, with the very retail services for which telecommunications providers were supposed to pay good money to be able to provide.

There may theoretically be logical reasons for this: in far-flung government departments, for example, it may be necessary to get high-speed coverage in areas where suitable competitive alternatives have yet to eventuate. The entire NBN Co model, after all, is built on the assumption that reasonably-priced backhaul will naturally attract a raft of new service providers, but this assumption has not been tested in the field. To date, after all, service providers have mainly become interested in expanding into rural markets when there's government funding — via the Australian Broadband Guarantee subsidy program — to make it worth their while.

Yet any retail-and-wholesale structure is a dangerous tangent to NBN Co's real mission. How can the government justify banning Telstra from providing both retail and wholesale services, then hand NBN Co a ubiquitous network and let it do exactly the same thing? That the legislation has not only left open the possibility for NBN Co to provide retail services, but has singled out government services as a potential customer, suggests there has been a fair bit of back-door dealing across the length and breadth of the Commonwealth Government.

How can the government justify banning Telstra from providing both retail and wholesale services, then hand NBN Co a ubiquitous network and let it do exactly the same thing?

You don't just make this stuff up, and it's probably safe to guess that Conroy has been approached by other departments sensing an opportunity to source lower-cost data services from NBN Co at wholesale prices — because, of course, the legislation requires consistent pricing for all customers to reduce infrastructure costs and meet ever-present budget pressures.

But what effect would this have on the rest of the telecommunications market? Government providers currently source their services from third-party providers — most from Telstra, but many from Optus, AAPT, or other parties depending on their requirements. All provide extensive implementation, consulting, support, service guarantees and ancillary services. These ongoing, quite significant revenues — government communications costs are measured in the millions, not thousands — are most certainly cross-subsidising other customers across the country, both in consumer and small-business spaces. Give the sugar daddies a way to buy their sweets straight from the wholesaler, and the rest of these companies' customers are going to be left to make up the difference. Prices rise, and everybody loses.

I am reminded of an effort by computer maker Compaq (now owned by HP), about a decade ago, to break into the retail market by opening its own branded stores that would avoid its losing margins to those pesky resellers. It was good in theory — no, let's be honest, it was disastrous in theory — and imploded on itself as quickly as the company could terminate its leases. Many very large and influential channel partners raised hell about the move, and some stopped distributing Compaq products altogether. The move from wholesale to retail was an unmitigated disaster.

This is what can happen when you don't stick to your knitting.

We can, perhaps, take some consolation from the insertion of the requirement that the minister got the OK from the ACCC that retail services wouldn't be provided without assurances that such a move wouldn't be anti-competitive. Yet can we trust this system of checks and balances to deliver a pro-consumer and pro-small business outcome? Or is it just another smokescreen designed to disguise a policy whose ultimate result will be to use tens of billions of taxpayer dollars to build a network that will marginalise competitive providers through some sort of tit-for-tat political arrangement?

Being a retailer isn't just about hanging out a shingle and calling one's self a retailer. There are systems to be put in place, both technological and procedural.

There are practical considerations, as well: being a retailer isn't just about hanging out a shingle and calling one's self a retailer. There are systems to be put in place, both technological and procedural. There are service guarantees to be met, and penalties to be worn if those guarantees are not met. There are profit margins to be decided, and distribution of those profits to be clarified; marketing to be done; customer support to be provided, requiring a massive on-the-ground force of technical and customer relationship managers.

Like Pandora, Conroy is cracking the lid on a box of potential disasters. For all his success in delivering actual, tangible draft legislation, leaving the door open to retail services will open Conroy to significant criticism. He is accepting feedback on the legislation for the next two weeks, and it will be interesting to see what the telecoms world thinks of the proposal. After dropping such a massive bomb on the market, failure to spell out precisely why this option has been flagged, could well leave a poisonous fallout that would last well past the upcoming election.

What do you think? Is there a valid case for NBN Co to offer retail services?

Topics: NBN, Broadband, E-Commerce

About

Australia’s first-world economy relies on first-rate IT and telecommunications innovation. David Braue, an award-winning IT journalist and former Macworld editor, covers its challenges, successes and lessons learned as it uses ICT to assert its leadership in the developing Asia-Pacific region – and strengthen its reputation on the world stage.

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

30 comments
Log in or register to join the discussion
  • Wouldn't This Raise Anti Competitive Issues

    Forcing Telstra to split into wholesale and retail is one thing but surely using legislation to destroy a company that you intend to go into direct competition with, i.e retail, must raise some anti competitive issues along with legal issues. I've long given up hope of moral issues having any influence on decisions made by this Government. Surely there must be some level of control over what a Government can do, or are they a law unto themselves. I personally think that the Minister and also the ACCC are attempting to set themselves up to be answerable to no body at all, how is that possibly good Governance or for that matter good for Australians?
    anonymous
  • where were you

    some people now question the competitive fairness of telstra against a bigger foe, the nbn.

    where were they when the telstra gorilla was mauling all the little guys before. probably arguing that it was fair.

    what goes around.
    anonymous
  • bully boy conroy

    cant wait for next elections to toss this lot out of office this bully as destroyed the value of every hard working family that have purcased shares in telstra in good faith . proud telstra shareholder plus 1.39999 other shereholders
    anonymous
  • So what?

    So how does that make it correct?
    And how does that solve the problem?
    It seems the government is just making up the rules on the fly.
    This for a project that they are yet to convince even there supporters of the sustainability of its business model.
    This whole mess is not funny at all.
    anonymous
  • Another Conroy sham

    Allowing NBN to go retail is totally wrong. There is no possibility of this being the right direction to proceed.

    The government should force Telstra to split into retail and wholesale. Remember when Telstra lowred its retail price below what it was charging its wholesale customers, and took months of dragging its heels to reverse this inane position?

    Studies have shown how organisations can behave like psychopaths. Give them too much power and the results are predictable and disastrous.

    Keep NBN as wholesale and keep retail as totally separate - all else is madness.
    anonymous
  • Doesn't seem so sinister after all?

    From the explanatory note:

    The Government's clearly stated policy is that NBN Co is a wholesale-only company. However, the Government considers that NBN Co should not be prevented from purchasing telecommunications companies, even if they have retail businesses, if such an acquisition could support the early development and rollout plan of the NBN. Clearly, NBN Co would still be subject to the wholesale-only obligation in section 9 and would need to set in place clear transitional arrangements for divesting any retail operations involved in such acquisitions. NBN Co will need to notify the Commonwealth of any proposed acquisitions, including acquisition of a significant shareholding, as part of its reporting obligations under the CAC Act and under Part 4 of the NBN Companies Bill. Consideration could also be given to amending NBN Co's constitution to require it to seek approval from shareholders for any significant acquisitions.
    anonymous
  • Hidden Agenda's

    Once again Conroy is shown to have a hidden agenda. Like the filter its not about what he purports to support, its what's in the fine print.
    anonymous
  • Come in Australian suckers.

    The penny is starting to drop and the real agenda of a devious and dangerous Government is starting to appear.

    Telstra, Optus and every player need to be on guard and frightened. The Rudd plan is, by regulation and legislation, to remove all competition to the NBN Co. Then as a monopoly to sell the NBN Co to the Australian people as a monopoly with no competition.

    As they say, history repeats, just like Mr Howard did with Telstra.
    anonymous
  • Huh!

    Huh. That's not what is being discussed here at all. The point is sidestepping the whole wholesale/retail chain to provides services directly to the end user, which by the way is the definition of retail. The thing that frightens me most of all that the power is given to the incumbent to decide. the purpose of a law that is brought in by legislation is it applies to all and doesn't allow for an arbitrary party to redefine it.
    anonymous
  • It hurts to agree with Sydney Lawrence,

    but replacing one monopoly with another is a terrible idea. ABSOLUTELY TERRIBLE!

    Still- it couldn't possibly be any worse than Telstra could it? Worst case scenario is in ten years we'll be exactly in the same position we are now, but $43 billion in debt and with 100mbs connectivity. (Unless you are in regional areas, but it doesn't appear anyone but the Nationals care for regional Australia)
    anonymous
  • The point is about other services

    It continues to amaze me that analysts and commentators still have it in their minds that there will be one, and only one, service provider for a household. GPON ONT's typically provide 4 ethernet ports.

    The second thing that amazes me isthat commentators don't understand that some services will be delivered to consumer premises using the NBN infrastructure but for whom the acquirer of the NBN service is the other service provider not the householder. There are a number of people concerned that this later model might require NB Co to sell directly to, say, the Health Department, so the Health Dept can provide to the consumer an in home health monitoring unit.

    No one knows exactly how to draft the bill in such a way as to enable this. Therefore the Bill has the carve out to enable the Minister to exempt certain services fro the "wholesale onl" exemption. The Minister's action is by legislative instrument, which is a disallowable instrument (either ouse of Parliament can reject it). He has to consult with the ACCC and under the legislative instruments Act he will have to include i the explanatory memorandum the outcome of the consultation.

    The clauses couldbe stronger, but this is not some machiavellian "thin end of he wedge" deception.
    anonymous
  • NBN will not be a retail provider!

    NBN Co will only be capable of providing point to point ethernet connectivity within the same aggregation point. This means datacenter to datacenter L2 connectivity in places like Canberra or where there are departments with multiple admin sites. It makes sense for them to do that and it's a small fraction of Telstra's E&G revenue. Stop the hysteria and pot stiring analysis.
    anonymous
  • Government owned Retail arm

    The government should then create their own ISP that provides access to government departments, schools, hospitals, centrelink etc. Perhaps even go further and supply to anything where the money is ultimately coming from the government (including if they hook up internet to government housing etc).
    anonymous
  • accepting feedback?

    "He is accepting feedback on the legislation for the next two weeks, and it will be interesting to see what the telecoms world thinks of the proposal. "

    just coz Conroy is accepting feedback doesn't mean he'll pay any attention to it. The man has his own agendas and doesn't give a damn about the opinions of the voters
    anonymous
  • Conroy needs to go

    The concept of the NBN is great, but Conroy is making an absolute mockery of it. He presses ahead controversial issues despite national (and international) condemnation, and all the while makes the rules up as he goes.

    K Rudd, get this clown off your cabinet before he costs you the next election.
    anonymous
  • The real NBN > ICON nationwide!

    No one has yet joined the dots ... have a look at http://www.finance.gov.au/e-government/infrastructure/icon/index.html regarding ICON (Intra Government Communications Network) - still a 'secret' no carrier will criticize.
    anonymous
  • Can this gov run any big compay?

    They can't even get the roof isolation project right.
    anonymous
  • Conjob

    Clearly the Senator is not to be trusted on anything. First caught out censoring debate about Internet Censorship on his own website, now trying on this little scam.

    This man is a danger to democracy. I can only implore Victorians to vote "BELOW" the line at the next election and remove this stain from our body politic.
    anonymous
  • An interesting point

    The documents issued so far are quite vague on what Conroy means by providing retail services to government departments, but you raise a valid point about Health as a potential service provider.

    In this case, however, I think a better idea would be to set up a separate government-owned retailer to purchase NBN services on equal terms to other retailers, then resell them to government departments as necessary. Either that, or Health could set up its own virtual network operator that would buy wholesale services from NBN Co. and onsell them to the department and its customers. Transparency and singularity of mission are essential if the NBN is going to avoid stepping on all the wrong toes.
    anonymous
  • ooooookay

    And your point? You would rather Centrelink details etc be carried on a standard network?

    I find it a bit unusual that everyone is so against the government trying to cut it's costs. Also, by my understanding, the change could have been made to allow NBN to provide services direct to ICON to avoid it having to go to another provider. It would be rather ridiculous if NBN was in a position to provide the right service for such things, and yet it couldn't because of a wording error...

    But on the other hand, it's Conroy....
    anonymous