NBN Co should be split and sold: Vertigan panel

The final of the six reviews into Australia's broadband and the National Broadband Network (NBN) has recommended radical changes to Australia's broadband regulation, and the separation of NBN Co into companies split down the different broadband delivery technologies.

In the 19 recommendations contained in the final market and regulatory report put together by the panel, which was headed up by Michael Vertigan and commissioned by Communications Minister Malcolm Turnbull last year, the panel has called on the government to split NBN Co into competing companies.

The transit, satellite, and fixed-wireless units should be sold off, the panel argued, with the hybrid fibre-coaxial (HFC) networks, still currently owned by Telstra and Optus, owned and operated by a non-NBN Co entity.

"Relying on NBN Co as an integrated entity to be the principal means of delivering those services is deeply problematic. The current model, in which NBN Co controls the full spectrum of technologies, inhibits the development of competition, is difficult to effectively regulate, and results in unacceptable risks to, and costs on, taxpayers and consumers," the report stated.

These four companies would bring infrastructure-based competition back to the telecommunications industry, the panel argued, where the former Labor government had argued that for fixed-line telecommunications, there is a natural monopoly on an infrastructure basis.

"Disaggregation would improve the prospects for infrastructure competition now and in the future, encourage private investment, and bring specialist skills to bear in managing each of these networks. Rather than duplicate fixed costs, the approach the panel recommends would secure the maximum leverage from existing assets whose costs are sunk, using those assets as the basis for actual and potential competition," the panel said.

"It would prevent assets consumers have paid for (including the copper in HFC areas) from being prematurely scrapped, instead harnessing those assets for the benefit of end users. Over time, this approach should reduce financial risks to taxpayers, facilitate a transition to private funding and improve the chance of efficient and timely network deployment."

In the proposal, ADSL services would be allowed to remain operating in HFC areas, and could potentially be upgraded to fibre to the node or fibre to the premises, the panel said.

Although the panel admitted that there would be some duplication of operating and network upgrade costs, if the competition resulted in a sped-up delivery of the networks, these benefits would outweigh the costs.

Turnbull, however, has already put a brake on the proposal, in a statement released with the report.

"While disaggregation of NBN Co's business units (as the panel recommends) after the network is complete cannot be ruled out, now is not the time. Breaking up NBN Co would distract its management and delay the provision of high-speed broadband to all Australians," he said.

The so-called cherry-picking provisions that prevent infrastructure operators from competing with NBN Co, unless they offer layer-two wholesale services only, should also be removed, the panel argued. Speaking to journalists on Wednesday, panel member and economist Henry Ergas argued that in light of TPG's fibre-to-the-basement project, the 2011 rules designed to prevent competing networks from undermining the NBN business case were not devised well, and aren't very effective.

However, Turnbull indicated that it would be difficult to immediately implement any changes to competition rules.

"Amending existing laws governing broadband networks that compete with NBN Co (as the panel has also proposed) so they are fair for all market participants will take time and inevitably involve uncertainty," he said.

"In the meantime, competing vertically integrated networks which do not provide wholesale access to retail service providers could undermine the level playing field for retailers. Therefore, the government is consulting industry on a carrier licence condition to ensure maintenance of the level playing field originally intended by the existing legislation."

NBN Co becoming the "provider of last resort" for new housing developments where NBN Co provides the fibre to those premises for free led to a number of existing providers claim that they are being priced out of the market. The panel has recommended that NBN Co should recoup its costs for supplying fibre to new developments, thereby levelling the playing field with its competition.

Turnbull indicated that the government needs to consider how this change might impact new home buyers.

"The government recognises that the private sector has been placed at a substantial competitive disadvantage by the current arrangement, where NBN Co provides fibre infrastructure to new developments at no charge, while the private sector has to recover costs in the normal way," he said.

"The government will consult with industry stakeholders with a view to finalising reforms in this area that address the imbalance in competition in a manner that is fair to all parties, including new home buyers."

The panel has also recommended moving away from uniform national wholesale pricing of services, and instead adopting a price cap for NBN-type services. This would ensure that broadband is still affordable in regional and rural areas, but would allow competition to bring down the price elsewhere.

Similar to the recent Harper competition review, the report also calls for a new national telecommunications regulator, to replace the ACCC's role.

Although Turnbull had indicated prior to the release of the final Vertigan report that the proposals have to be put before the Cabinet, the government will not provide its full response to the report until closer to the end of year.