Nextgen to roll-out new backhaul pricing

Over the coming weeks Nextgen boss Phil Sykes will be touting a new pricing regime for regional backhaul, which the telecoms industry hopes will undercut Telstra's pricing.
Written by Liam Tung, Contributing Writer on

Over the coming weeks Nextgen boss Phil Sykes will be touting a new pricing regime for regional backhaul, which the telecoms industry hopes will undercut Telstra's pricing.

Conroy handshake with Wal King

Communications Minister Stephen Conroy signs over $250 million to Leighton boss Wal King
(Credit: Liam Tung/ZDNet Australia)

While the industry has welcomed today's announcement that Leighton subsidiary Nextgen will build and operate the planned 6000 kilometres of backhaul for the next five years, there was uncertainty over which organisation the access seekers would need to negotiate with and what prices would be charged.

"This announcement is quite exciting for iiNet," Steve Dalby the ISP's regulatory affairs officer told ZDNet.com.au. "And we are very supportive of this initiative, providing it delivers the attractive pricing as well as an alternative supplier. What we are waiting for now, of course, are the commercial details."

Those details will be unveiled to the industry over the coming weeks, Nextgen's Sykes told ZDNet.com.au. He said that pricing for access to the new links had been determined in the tender process, which was known to have been fought out between Optus and Nextgen.

"We have had to tender what pricing would be in all the locations — and it's through that competitive process that pricing has been set," said Sykes.

"Pricing will unfold over the next couple of months and that depends on location, distance and volume," he said.

Nextgen was required to sign an "equivalence undertaking" as part of the tender also, meaning that it, like the proposed pricing model for the NBN Co, must provide equivalent pricing to all its customers.

Sykes said most of the $250 million tender would cover the construction of the network, and that while it had rights to sell access to it, the Federal Government would retain ownership of the actual passive asset. Nextgen's own skin in the project will be limited to operating the network.

"Our mandate is to build and operate the network over the next five years and to commercialise it on the terms agreed," he said.

After the five-year period the Federal Government has reserved the right to sell the network; however, it is not clear yet whether it will be sold to the NBN Co or another network operator.

"The government will need someone to operate the network — it could be the NBN Co, or could go back to the industry. There are a range of possible outcomes," said Sykes.

The former Shadow Communications Minister Nick Minchin described the backbone project as "fibre to the paddock". "What's important is what will be at the end of it. There are no guarantees that actual services will be delivered to the communities along these links. Will NBN Co own these assets after five years?" asked Minchin.

Will regional Australians see lower pricing?
Minister for Communications Stephen Conroy today said Western Australians were paying 250 to 700 per cent more for broadband due to a lack of competitive backhaul; but while carriers may in the future face lower regional backhaul costs, opinions are divided as to whether the links will lead to lower prices for consumers.

iiNet's Dalby said he was a little cynical over pricing because it had been "battered and bruised by commercial negotiations" over backhaul access, largely with Telstra. He said customers wouldn't necessarily see lower pricing because it already offers national pricing. However, lower backhaul pricing will mean that iiNet expands its footprint of DSLAMs to provide ADSL2+ broadband in these areas.

In many remote areas iiNet has been unable to justify the installation of these at Telstra's exchanges due to the high cost of backhaul, he said.

Telstra was unable to respond to ZDNet.com.au's question whether it would cut backhaul pricing in the face of Nextgen's competitive network. Optus also was unable to respond to today's announcement.

Though Matt Healy, Macquarie Telecom's regulatory affairs executive, said he was confident consumers would see lower pricing. "We'll see how this flows through, but if you look at what happens where there are more than one provider, first, you're able to access competitive services and secondly, you have price competition. We'll wait and see but I'm confident it will be a significant saving to what people currently pay," he said.

Ovum telecoms analyst, David Kennedy, agreed with Dalby. "Most operators price nationally so I wouldn't expect any effect in terms of pricing. Where we would hope to see the effect is in operators starting to offer services to areas where they don't currently because we haven't been able to access prices that fit their business case."

Macquarie Telecom's Healy said that while it offers a national service to its corporate customers, it would service some areas, such as Darwin, at a loss or very slim margins.

Kennedy added that mobile services should expand in these regional areas. While the likes of Vodafone Hutchison Australia and Optus claim almost 100 per cent 3G coverage, service quality has been constrained by a lack of backhaul — an advantage that Telstra boss David Thodey knows the telco has over the rest of the industry, regardless of the government's threat to ban it from spectrum auctions in 2012 that would allow it to launch 4G mobile services.

"This backhaul will provide a route for mobile backhaul, so it will provide support for mobile broadband as well as fixed in the future," Kennedy said.

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