Break up NBN Co before privatisation: ACCC

NBN Co should be split into three different entities down delivery technology lines before the company is privatised, according to the chairman of the Australian competition watchdog, Rod Sims.
Written by Leon Spencer, Contributor

The Australian Competition and Consumer Commission (ACCC) chairman Rod Sims has called for NBN Co to be broken up into separate entities before it is privatised to ensure future infrastructure-based broadband competition.

Sims, who spoke at the CommsDay NBN Rebooted event in Sydney on Monday, said that the disaggregation of the company behind the construction of the National Broadband Network (NBN) would provide an opportunity to shape the future market structure.

"NBN Co should be privatised in future. When contemplating this, the government should not limit competition in order to maximise the proceeds from the sale; there is too much at stake for that," said Sims. "It will be strongly in Australia's long-term interests for, say, three separate entities based on delivery technology to be sold that can provide a platform for future infrastructure-based competition."

Sims' proposal for NBN Co's future disaggregation is in line with findings of the Vertigan Panel, commissioned by Communications Minister Malcolm Turnbull last year, with the final report in September by the Michael Vertigan-headed panel recommending that NBN Co's different technology types should be split into separate companies, with large parts sold off.

While Sims acknowledged that such a breakup and sell-off of NBN Co's business would detract from the company's rollout of its national network infrastructure, it should put into motion the mechanisms that could see its disaggregation prior to its privatisation.

He argued that in the ACCC's experience, if the process is not kicked off early, it is extremely difficult to do later on.

"Let me make a suggestion on separation timing," he said. "It should be done prior to any privatisation of NBN Co. After that time, it is highly unlikely that separation will ever occur. NBN Co should therefore put in place arrangements that provide for future separation of NBN Co at an appropriate time.

"The ACCC stresses that if NBN Co is not disaggregated in the near future, it is imperative that measures are put in place now to facilitate future infrastructure-based competition. In this regard, NBN Co should put in place arrangements that provide for future separation of NBN Co at an appropriate time," he said.

Sims suggested that such arrangements include internal systems, and accounting and reporting systems, adding that the expense of preparing for disaggregation sooner rather than later would be more cost effective in the long run.

"While putting in place such arrangements may come at some initial cost, the benefit of doing so when it comes to separating the business in future will be far in excess," he said. "I will always prefer competition between infrastructure providers rather than entrench a monopoly."

The ACCC has also been considering a number of complex pricing issues related to the NBN, with the most significant being how to account for the impacts of the transition to the NBN in prices for Telstra's declared fixed-line services, the general decline in the use of Telstra's fixed-line network, and the approach to the allocation of costs to access services.

In the transition to the NBN, the valuation of transactions including the sale, leasing, and decommissioning of Telstra's fixed-line assets will be significant for prices, he said.

"The ACCC will use the regulatory value of Telstra's assets, not the higher payments agreed between Telstra and NBN Co in their definitive agreements, to adjust the cost base for NBN effects when determining regulated charges," said Sims.

Telstra's regulatory director, Operations and Economics Analysis, Iain Little said that rather than forcing NBN Co to split into three entities, the government should allow the company to complete the job with which it has been tasked.

"If it becomes a real consideration, the decision to split the company in three can have a big impact on their execution of strategy and it can be a big distraction. Let's let NBN Co get on with the job," said Little.

However, he did concede that there was a place for infrastructure competition, but that there should be a level playing field where those opportunities do arise.

Little argued that, as a long-term public infrastructure project, the NBN had to survive the political cycle and, as such, should have firm legislative objectives or licence conditions imposed on it that would not change at the whim of policy and government.

"Telstra's experience, when faced with carrier licence conditions, you tend to develop strong compliance within the company," he said. "I think that's an important aspect in an ongoing basis. If [NBN Co] is not able to meet the objective today, there's no point in having them, but there should be pathways for them to be met.

"The objectives now are to provide the population with a broadband connection," he said. "If we get stuck sticking to an old technology to deliver a service, then we've got a problem."

The chief regulatory officer for Australian telecommunications carrier Opticomm, Phil Smith, said that breaking up NBN Co would allow easier access and greater oversight for regulators.

"For NBN Co to be best regulated, the regulator needs to have some insights of it," he said at the event. "If you have one massive big NBN, you'll have the same problems that the regulator had regulating Telstra before it was broken up. If we break it up you get a better view of NBN Co and a better way to regulate it."

Smith pointed out that, already, NBN Co's size and complex operations — particularly under the government's multi-technology mix approach — had hampered its rollout.

"The greenfield part of the build was distracting NBN Co from the brownfield deployment," he said. "Why not split that and make it a competitive space?" 

"There is already evidence within NBN Co that one type of deployment can distract from the others," he said.

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