Xenophobia may be prudent for the NBN

Xenophobia may be prudent for the NBN

Summary: Discussions to date have assumed the NBN pie will be split between existing major ISPs — but it's important to remember that low barriers to entry could make the NBN an appealing target for overseas telcos or retail giants. Backed by miscegenation with content giants, the result could be broadband-content bundles to make consumers sing — and domestic ISPs weep.

SHARE:

There has been so much discussion about the effect of the NBN on local telecommunications providers that it seems the industry has entirely ignored what could very well be an even bigger disruptive threat: the way the network will facilitate the entry of overseas telcos into Australia's local-access market for the first time.

Highly capitalised overseas giants like AT&T, BT, Verizon, Deutsche Telekom, TeliaSonera and others have a long history of investing in other countries outside their core geographies. In Australia, SingTel-owned Optus has, of course, been the most significant investor in local infrastructure, but many of those and other foreign telcos have invested only modest sums in private-network connectivity to support the Australian operations of large multinational customers.


Australia's ISPs shouldn't assume their main NBN competition will come from within the country.
(Credit: NBN Co and David Braue/ZDNet Australia)

Further expansion previously proved untenable because of the significant capex involved, but the NBN may very well change all that. Instead of the massive expense of widespread DSLAM roll-outs, an overseas carrier could set up and begin delivering broadband to Australian households with a relatively small investment: an Australian business presence, a license to be an ACMA-certified carriage service provider or content provider, and completion of NBN Co certification and on-boarding processes. Furthermore, with a broader revenue base and risk mitigation processes, they may not be as averse to signing the NBN Co Wholesale Broadband Agreement as domestic providers have proved to be.

Even with the local ISP industry embarking on a furious customer grab in the lead-up to the NBN's roll-out, the possibility of a foreign invasion should have more than a few ISPs quaking in their boots. Telstra and Optus may have the weight of significant market bulk on their side, but the rest of the industry — from iiNet and Internode on down to Adam Internet, TPG, Exetel and others — could easily be challenged by an overseas operator that sees the NBN as an easy incremental revenue boost.

The industry could easily be challenged by an overseas operator that sees the NBN as an easy incremental revenue boost ... and miscegenation with media conglomerates could bring much-needed diversity to content broadcasting.

Local ISPs would hate this, but it could have wonderful effects for Australian consumers — and not just in terms of lower prices. American broadband giants, in particular, have a history of miscegenation with media conglomerates that could bring much-needed diversity to content broadcasting: Comcast, for example, is one of America's largest ISPs and also has a 51 per cent share of TV-movie behemoth NBC Universal.

Let's say Comcast decided to set up a token presence in Australia, backed by a customer-service organisation that was either tied to its already-established contact centres in the US and elsewhere, or delivered through a local contact-centre outsourcer. Comcast could piggyback on the NBN to complete the access component of its service offering, then target the market with broadband-IPTV content bundles that include content to which Foxtel has so far declined to subscribe.

Some content providers are already working out deals to counter such an attack: Foxtel and FetchTV, in particular, have been exploring new delivery methods over internet protocol (IP) that will also tap into the NBN. But the market size and weight of an overseas telco would create an important and credible competitor that could deliver an identical broadband experience to domestic carriers, potentially bundled with the kind of content-based cross-subsidies that local providers can struggle to deliver.

Overseas telcos — particularly those that, like BT and Verizon, have thriving businesses linking offices of multinationals around the globe — would see the NBN as a lifesaver: not only can they link major branch offices with a fibre service, but with the NBN they'd be able to push their services down to the medium or small-business level. This would, for example, allow even the smallest offices of tiny suppliers to specific manufacturers to stay constantly connected to their upstream partners' global networks.

Business-to-business communications could easily be carried — securely — by a global telco that uses the NBN to extend its fibre from the automotive maker's boardroom to the designer's desktop.

Think about a tiny automotive design house in Geelong using such a network to review new designs online, in real time, with customers at a European or Japanese manufacturer, and you've got the right idea. These sorts of business-to-business communications could easily be carried — and securely — by a global telco that uses the NBN to extend its fibre from the automotive maker's boardroom to the designer's desktop. This connectivity will be possible using generic NBN services, but a global telco could sell it to its enterprise customers as an extension of existing long-haul services.

It's not only overseas telcos that can get in on the action: why couldn't the likes of US retail giants Costco — which already has an Australian presence — or Best Buy, which does not, start reselling services as well? Their entry into the market would challenge inevitable services from Woolworths and Coles, creating entirely new opportunities for cross-subsidies and putting new downward pressure on the price of broadband services.

If this sounds ridiculous, consider that UK retail giant Tesco is already selling broadband and home-phone services at extremely competitive prices. Given their determination to play the market in this way, they could easily extend their model to Australia via the NBN — and generate significant branding value even where they don't have an existing presence. They could even contemplate buying a local ISP to rapidly gain critical mass in the local broadband market.

There are lots of "coulds" and "shoulds" here — but the potential for foreign investment in NBN delivery should not be ignored. A concerted effort to target Australian consumers would throw a spanner into a domestic industry that seems to be fixated on the idea that the NBN revenue pie will be split between a few large extant players, and offered at retail rates they can carefully control. With barriers for entry now far lower thanks to the NBN, strong cross-promotion could easily push retail prices below NBN Co's wholesale costs — creating a nightmare for domestic business models but a dream for consumers.

What do you think? Will the NBN's ease of access attract overseas telcos and retail giants? And would this help or hinder local consumers? What kind of offer would convince you to buy your broadband from Walmart or Tesco?

Topics: Broadband, E-Commerce, Telcos, NBN, Tech Industry

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

7 comments
Log in or register to join the discussion
  • With the past performance of Telstra competitors to 'whinge and win' I would think the foreign competitors could soon be eliminated from the Australian market. I think the big danger for smaller ISP's will be Australia Post which is perfectly positioned to enter the NBN retail delivery market.
    sydneyla
  • Whinge and win... just can't let NWAT go can you Syd?

    Congrats BTW - I see Telstra shares are now 3 (and a half...LOL) cents more than they were this time 14 years ago. Go you good thing...!
    Beta-9f71a
  • Not seeing so much as the small design house in Geelong but more the small services company in New Delhi selling anywhere into Australia. The really interesting one that is developing at the moment - overseas medical clinics planning to offer telemedicine.

    Just to comment on one of the statements - prices will be pretty much constrained by the underlying wholesale rates as minimal competition (and getting less). About the only possible competition in that space is in the POI backhaul.
    Rossyduck
  • Many thanks Beta for the update on Telstra information. My happiness is not so much concerned with the acceleration in the price of Telstra shares but the fact that an Australian company can demonstrate its superiority over the best that foreign companies can throw at us. Seasons best wishes to you Beta and to every employee at ZDNet.
    sydneyla
  • So you support iiNet, Internode etc...? Then why call them leeches and say God Bless Telstra?

    As such, you wouldn't now like to retract that 2nd paragraph, would you?
    Beta-9f71a
    • Oh Syd...yoo-hoo...!

      Your disappearance and dodging of my questions is ("typically") most incriminating!
      Beta-9f71a
  • Beta I was certainly not dodging your question. I was simply not wishing to indulge in unfounded negativity based on mistruths and insulting innuendo at this happy and celebratory time of the year.
    sydneyla