NBN Co has acknowledged for the first time that TPG's fibre-to-the-basement plan could undermine the economics of the National Broadband Network (NBN) company as TPG looks to install fibre in highly profitable areas.
As NBN Co develops a new corporate plan and direction for the rollout of the NBN to commence in June, telecommunications provider TPG is forging ahead with plans to connect 500,000 apartment blocks and offices across Sydney, Melbourne, Brisbane, Adelaide, and Perth with fibre to the basement.
The decision to expand its fibre network will be examined by the government as part of the telecommunications industry cost-benefit analysis due to report to government in June, and it could potentially be in conflict with anti-cherry picking laws implemented by the former Labor government designed to prevent infrastructure builders rolling out their own fibre networks in highly profitable areas and undermining NBN Co's business model — which relies heavily on the profitable customers in city locations subsidising regional customers.
In an exclusive interview with ZDNet following the company's first ever half-year report, Switkowski said that while TPG's plans don't appear to be a threat to the company, he admitted that cherry picking could undermine the business model for the NBN.
"Any cherry-picking initiative by companies like TPG and others has the potential to undermine the economics of NBN Co," he said.
The executive chairman said he is aiming to seek clarification from the government on whether such cherry picking would be allowed in the future, in order for NBN Co to work out its own business model.
"The whole industry is looking for certainty in terms of the rules. Our position will be to explain to the committee, and therefore the government what the consequences are of alternative market, or competition models," he said.
He said it is up to the government to determine the industry structure, and if that compromises NBN Co's economics, that would be the decision of the government.
This morning, NBN Co announced that it would undertake a trial of fibre-to-the-node (FttN) technology in hundreds of premises in New South Wales and Victoria using existing Telstra copper lines that NBN Co is negotiating to rent from Telstra in a separate agreement to the overall negotiations around access to the copper network.
Switkowski indicated that the trial would be used to determine how NBN Co would deploy the technology, and be able to reach scale for the rollout of the network to reach 100,000 premises per month. On the question of how NBN Co can be certain of the costs associated with the rollout before undertaking the trial, Switkowski said that NBN Co is reliant on the information received from telcos overseas that have deployed similar technology.
"We draw comfort from the fact that we're not proposing to do anything that hasn't already been done elsewhere in geographies that are similar to ours. We think we've got the costings reasonably accurately," he said.
"The criticism that has come back is that we can't be absolutely certain of the quality of the copper network. I think we can be confident of the quality of the copper network, [while] recognising areas where the network has problems, and we have made provisions for that and it is realistic."
The cost for the trials were "very small" compared to the overall rollout, Switkowski said.
He denied reported claims that Telstra has been remediating the copper lines in the locations where the FttN trials would take place.
"I don't believe it," he said.
Yesterday, Communications Minister Malcolm Turnbull said that the 1.6 million premises across Australia that are deemed to by underserved by broadband services in Australia would be a priority for NBN Co when it undertakes its new rollout. This has the potential to conflict with NBN Co's plans to speed up its run rate, but Switkowski said it would all balance out.
"The prioritisation will lead to a rebalancing of work, but even that will be subject to the normal commercial disciplines. We're going to do it where we can as part of a community build. If they are in areas where commercial opportunities are attractive, we'll be there early," he said.
"The plans aren't in place yet, but the plans will simply show the proportion of underserved areas that are addressed by NBN is higher than their presence in the higher population."
NBN Co has yet to make a plan around reusing the existing hybrid fibre-coaxial (HFC) networks as part of the new NBN as flagged in the strategic review, but Switkowski indicated that premises in areas where Telstra and Optus' HFC cables have been deployed may not get the option to choose between fibre to the node or HFC.
"It's a detail we haven't sorted out. My sense is that once we identify a HFC area and proceed to infill it, if in fact that's what we do, then the copper will be decommissioned," he said. "But that's an early view, and that's definitely not a company view at this stage."
NBN Co is now in discussion about how it could potentially reassess its product offerings in response to feedback from retail service providers (RSPs) such as iiNet that NBN Co's current product offering is too rigid for what it wants to provide consumers.
"We're now regularly talking to the RSPs, not just about the rollout schedule, but also the product design, the CVC [connectivity virtual circuit] and AVC [access virtual circuit] pricing. There's a whole range of things there that may a year down the line look quite different as we respond to industry advice," he said.
"Because in this case, what our RSPs want, which will make them successful, will also make us successful, with only a few exceptions, such as we're probably never going to agree on pricing."
A spokesperson for NBN Co indicated that the company is already using a duct remediation technology recently floated by a Western Australian contractor that would reduce the cost of deploying fibre in the network, and Switkowski said NBN Co is open to any new innovations to reduce the cost of building the network.
"If anyone comes up with an innovation that makes a material improvement to what we're doing, of course we're going to be interested."