Can brinkmanship build a just monopoly?

We're only days into 2012, but ISPs are already drawing NBN Co into a showdown over its Wholesale Broadband Agreement. Are they just testing its patience, or can their stonewalling push the company back to the drawing board yet again?
Written by David Braue, Contributor

If a camel is a horse designed by committee, what are we to make of the National Broadband Network (NBN)? Seemingly far from the authoritarian monopolist that it's made out to be, NBN Co has solicited input at every stage of its development so far and changed its plans numerous times as a result. However, all this caring and sharing has embroiled the company in yet another fierce debate as more than half of Australia's ISPs refuse to sign its final Wholesale Broadband Agreement (WBA).


Building consensus is hard — but how accommodating can NBN Co be before an impasse locks major ISPs out of the NBN? (Bactrian Camel image by Michael Pereckas, CC2.0)

The WBA, you'll recall, was under construction throughout most of 2011, with numerous changes made over several drafts to accommodate the concerns raised by these very same ISPs — which, NBN Co conceded to Communications Day, include "the big names".

NBN Co just can't win: in trying to be consultative, it has helped perpetuate the delays that have pushed back its own subscriber base, which in turn got it a pasting at the hands of coalition opponents when subscriber numbers of just 4000 were recently revealed. Now, with Christmas lights still on houses and just three days to go before NBN Co's deadline for internet service providers (ISPs) to sign the WBA, we're headed for yet another industry stand-off.

Is this really the way to build an equitable national infrastructure?

Not everybody is refusing to sign, of course: 12 ISPs, including newcomers like SkyMesh, are aboard and ready to start signing up new customers nationwide at a furious pace. Yet with the likes of major ISP iiNet still unapologetically standing their ground and NBN Co refusing to extend the deadline, something's going to have to give.

iiNet's stated objections to the WBA relate to issues such as its circumvention of regulatory oversight and refusal to shoulder liability for service problems — weighty issues that would seem to be driven as much by NBN Co's commercial and legislative mandate as by any cultural desire to avoid accountability.

Can a bloc of recalcitrant ISPs force NBN Co back to the negotiating table? Or are they just being NBN curmudgeons, whose obstructionism will just give a head-start to those rivals that are willing to accept the WBA and get on with things?

Can a bloc of recalcitrant ISPs force NBN Co back to the negotiating table?

NBN Co's posture so far has largely been that all of its customers must sign the same WBA — so if a dozen early adopters are already on-board, it would seem difficult if not patently impossible for NBN Co to then start allowing the hold-outs to dictate different terms. Under NBN Co's equivalence policy, earlier agreements would need to be revised, over and over again, until everybody was happy. If we're ever to get past this, NBN Co has to draw the line somewhere.

The thing is: it never hurts to try — and time is, despite what NBN Co believes, on the ISPs' side. Because with Telstra's structural separation undertaking (SSU) still very much up in the air, NBN Co still can't migrate the bulk of its customers from Telstra until the SSU is finalised. In the meantime, the rest of the ISP community can risk a bet on the idea that NBN Co will likely back down by extending its deadline, even if it doesn't give in to demands to modify the WBA.

After all, as Stephen Conroy knows all too well, it's hard to create a sense of urgency when there's nothing to back it. Just as the government blinked when Telstra took so long to submit its revised SSU that it risked cancelling the whole contract by missing its 20 December deadline, ISPs are arguing that NBN Co needs them more than they need it — and that they can afford to wait a while.

The biggest chunk of NBN customers, after all, will come from Telstra — and only once the SSU is signed in March. Or June. Or August. Or whenever, despite Conroy's attempts to impose an enforceable deadline, it's actually finalised. And that will, ultimately, be whenever Telstra wants to finalise it; this is the sad reality of NBN Co's and the government's negotiating position.

Are the ISPs simply trying to replicate risk profiles they have enjoyed for years in agreements with Telstra — or are they trying to target NBN Co's soft spot to extract concessions they have been unable to get for ADSL services in the past?

And on that day — and only then — the hold-out ISPs will finally have to make their real decision. Will their aversion to risk force them to continue pushing for terms that half of their competitors have already deemed acceptable — and risk losing customers that just want better broadband? Or will they simply have to give in to market reality and move forward with the WBA as it stands, knowing that — even if they don't like the quality of the pitch — they're competing on the level playing field for which they've fought for so long?

Certainly, there are valid concerns that large ISPs could be materially impacted by NBN Co's failure to assume more risk in the wholesale relationship. What is not clear, is how this varies from existing situations. Are the ISPs simply trying to replicate risk profiles they have enjoyed for years in agreements with Telstra, or are they trying to target NBN Co's soft spot to extract concessions they have been unable to get for ADSL services in the past?

Whatever their motivations, it already seems clear that 2012 is set to be packed with the same kind of brinkmanship that characterised the NBN debate through 2011. Whether empty rhetoric becomes well-grounded opposition will become clear in the longer term, but there is an immutable deadline as an election looms next year. Nobody's going to extend that deadline, which means NBN Co needs to take steps to ensure it delivers in 2012. And that means getting customers, by hook or by crook. Without them, only one thing is certain: camel, horse or white elephant, the project will never fly as high as it needs to.

What do you think? Can stubborn ISPs move this mountain? Or will NBN Co simply ignore holdouts and focus on its more-compliant signatories?

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