NBN Co fears fibre floodgates opening on TPG decision

NBN Co CEO Bill Morrow has said that should TPG roll out fibre networks along with Telstra and Optus in competition with the NBN, it would undermine the business model for the company.
Written by Josh Taylor, Contributor

The Australian Competition and Consumer Commission's (ACCC) decision to allow TPG to roll out fibre to the basement to apartment blocks in Australia's CBDs could potentially undermine NBN Co's business model if other players follow suit, CEO Bill Morrow has said.

After four months of investigation, the ACCC decided yesterday that TPG's plans to upgrade 500,000 units across Sydney, Melbourne, Brisbane, Adelaide, and Perth are not in breach of the Telecommunications Act rules against allowing fibre companies to extend their existing networks by no more than 1km.

While the ACCC launches an inquiry into forcing TPG and similar telcos to go wholesale in areas where existing copper services are upgraded to VDSL, Communications Minister Malcolm Turnbull has said that he will move quickly to ensure that wholesale services are in place.

The ruling poses a challenge to NBN Co, because the cross-subsidy model for the NBN means that the wholesale service price remains the same across the entire network, and high-use customers in city areas subsidise the cost for rolling out the network in regional and remote Australia.

Should TPG or others move to sweep in and take NBN Co's more profitable city locations, then the company cannot make back the cost for servicing regional locations.

Morrow told a Communications Alliance National Broadband Network briefing in Sydney today that NBN Co would have to re-evaluate its position should TPG and others be allowed to roll out their own networks.

"If that were to be a case where this is going to happen on a larger-scale basis, then we would have to consider what that economic model does. Is there more taxpayer money that needs to be given for the remote areas to have access? Do we just say we're not going to provide the same pricing?"

He said that some retailers would also object to a company like TPG being allowed to be both the wholesale provider of services and a retail service provider with more access to customer information than its competitors.

"Structural separation was part of the original intent. If there is a retailer that is going in to offer wholesale service, and if it is not a wholesale-only, one has to consider whether one of the competitors would say 'I'm happy to ride over your network'," he said.

"I say this because most of the RSPs have expressed concern that they don't want the big guy, Telstra, to have too much information into the existing customer base."

Turnbull indicated that if NBN Co's cross-subsidy no longer works, the NBN would not go on-budget, but said that there could be an "articulated element" of the wholesale price that every wholesale carrier such as TPG or NBN Co charges that would pay for the cross-subsidy.

"There is a powerful argument for greater transparency. Bringing the project back onto the budget is really a function of whether it is a commercial business, and that has really got nothing to do with the cross-subsidy."

Yesterday, Shadow Assistant Minister for Communications Michelle Rowland said TPG has only taken up the task of rolling out fibre to the basement because of the Coalition's decision to switch to the "multi-technology mix" model of the NBN, instead of the majority-fibre NBN.

"This problem has arisen because Malcolm Turnbull failed to properly consider the consequences of his second-rate broadband policy prior to the election. TPG announced its decision on 17 September 2013, just 10 days after the 2013 federal election. It was a direct result of Coalition policy," she said.

"A fibre-to-the-basement rollout was no threat to Labor's world-class fibre-to-the-premises network, but it could compete with Malcolm Turnbull's cheaper, second-rate network. An FttB rollout also meant that TPG would have a monopoly on the buildings it selects, because two providers can't both use the copper for vectored VDSL."

Turnbull, however, said that this is a direct result of the former Labor government refusing to allow NBN Co to roll out fibre to the basement to apartment blocks.

"That is the standard way of getting MDUs. If NBN Co had been able to do it when the company asked for it — this is under [former CEO] Mike Quigley's regime — precincts where TPG has gone would have been connected by NBN Co because they are cheap to connect, on a fibre-to-the-basement model, you're getting very, very high speeds, and, of course, they are high-value propositions," he said.

"I think the failure to give the company that flexibility is the commercial or business reason for why TPG was able to fill a gap."

ZDNet sought access to NBN Co's original proposal for fibre to the basement included in the company's 2012 draft corporate plan, but the release of the document was blocked by NBN Co, and ultimately the Information Commissioner, on the grounds that the document would reveal Cabinet deliberations of the former Labor government.

Cost-benefit analysis panel member and economist Henry Ergas argued that it would be difficult for Telstra to follow in TPG's footsteps because Telstra must operate on a structurally separated basis as part of its agreement with NBN Co.

Morrow said that the current renegotiations with Telstra over access to its copper and HFC networks would not be impacted by the ACCC's decision on TPG's networks.

"I don't think there's any relationship with the Telstra negotiations and the ACCC TPG decision. I think they're mutually exclusive," he said.

"If Telstra decides, and is allowed, to follow TPG into this other realm, it doesn't change anything we have in the negotiation."

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