Optus chairman slams Telstra control over NBN copper, calls for fixed-line separation

Optus chairman Paul O'Sullivan has demanded a government enquiry investigate fixed-broadband competition and the instatement of a new independent referee to evaluate separating Telstra from its copper network, also calling for customers to be released from existing broadband contracts when migrating to the National Broadband Network (NBN).

Speaking at a Trans-Tasman Business Circle lunch at NSW Parliament in Sydney on Wednesday, O'Sullivan said the NBN's reliance on Telstra's legacy network is giving the incumbent an unfair advantage, which is consequently lessening competition and stymieing innovation.

Last June, the Australian Competition and Consumer Commission approved the NBN copper migration plan seven months after Telstra and NBN entered into a revised AU$11 billion deal allowing NBN to take ownership of Telstra's copper and hybrid fibre-coaxial (HFC) network assets.

The agreement came as a result of the Coalition government's decision to move away from a full fibre-to-the-premises (FttP) rollout to a so-called multi-technology mix (MTM) also incorporating fibre to the node (FttN), fibre to the basement (FttB), HFC, fixed-wireless, and satellite.

O'Sullivan said that as a consequence of the change in NBN technology, Telstra has been allowed to both mandate and regulate the use of its copper network, with delays in rolling out the NBN worsening the effects of this.

"Because it's going to take longer, we're going to be relying on access to Telstra's copper for DSL for a lot longer -- for many years to come," the chairman said.

"And secondly, because it's now a multi-technology mix, because there will now be about 38 to 40 percent homes that will be connected to the NBN via copper, the existing Telstra copper, then Telstra's going to play a far more central part in the rollout, and in the customer migration.

"And here's the core of the problem with both of those facts: When you get into the detail of how competitors access the copper, Telstra has been allowed to both set and police much of the detail of how competitors can access the copper network both today, and in the transition to NBN and beyond."

Telstra is using this position to mislead the regulator, O'Sullivan said, referencing a chart about its fault repair times that he said proved this.

"Telstra's reported performance shows that it meets, or even exceeds, its target quarter after quarter ... But the reality faced by wholesale customers is quite different," he claimed.

"Performance targets are routinely missed, and by a long way. Telstra is using its ownership of the network to frustrate competition -- but by their own reports issued to the regulators, everything is OK."

The charts showed Telstra reporting up to 101 percent of its on-time completion of fault repairs target, while its wholesale customers experienced Telstra meeting only around 68 percent of its repair deadlines.

The Competitive Carriers Coalition (CCC), formed by Australia's non-dominant telcos, added its voice to O'Sullivan's demands, agreeing that Telstra's control over fixed-line networks is tainting the rollout of the NBN and thwarting a competitive, innovative sector.

"There is no doubt the promise of structure separation, the centrepiece of the NBN, has been eroded as the NBN completion date is extended," a CCC spokesman said in a statement.

"Telstra is aggressively taking advantage of its continuing access network monopoly to leverage further market power and dominance.

"The length of time the NBN is taking to displace Telstra -- along with the additional advantages Telstra enjoys now that the NBN is using more of Telstra's old network -- is exposing weaknesses in the transitional regulatory measures designed to protect competition and consumers during a full-fibre rollout."

A fresh set of wholesale service standards should be developed by a new independent arbitrator with "real enforcement powers", O'Sullivan said.

"We call on the government to establish an inquiry into how to maximise competition in fixed broadband," the chairman said.

"Let's stop relying on the incumbent, who makes 90 percent of industry profit, to measure itself in this critical area of the new Australian economy."

In the absence of an independent referee being appointed, the Optus chairman said the government enquiry should explore formally separating Telstra from its legacy network.

"Let's follow the steps already taken by the governments of New Zealand, Singapore, and proposed as recently as last week by the UK regulator ... Australian taxpayers are already paying compensation to Telstra for this separation."

O'Sullivan claimed that "some estimates" have reported Telstra will receive up to AU$90 billion from the government thanks to a deal made in the context of a full fibre-to-the-premises network, which aimed to compensate Telstra for the loss of all of its copper customers.

The justification behind the deal therefore disappeared when the government changed to the MTM NBN, with copper now being used for FttN, FttB, and fibre-to-the-distribution-point (FttDP) customers, which will make up around 38 percent of all NBN connections.

The change in network technology delivery has also "undermined" customer awareness of being switched over to the NBN by their service provider, O'Sullivan said. Due to the "seamless transition" facilitated by connecting to FttN or FttB, broadband services are able to be simply switched over on the telco's end, with the customers needing only a new modem.

Telstra is using the money given to it by the government as compensation for losing customers to retain those same customers by sending out modems and locking down contracts, O'Sullivan said, which "pre-conditions" customers not to question switching service providers.

To level out the playing field and give consumers an unrestricted choice, Optus -- which on Monday denied reports that it is planning to axe 1,000 jobs to help fund its English Premier League broadcast deal -- is suggesting that customers be released from their broadband contracts with no penalty fees as soon as their region is declared ready for service by the NBN.

"Any NBN service should be backed up by a signed customer order and a new contract. That is, existing contracts cannot simply be rolled over," he suggested.

"Optus is willing to commit to these principles provided they apply to the whole industry. Telstra should do the right thing by Australian taxpayers and sign-up as well; after all, it has been compensated for any lost market share because of the NBN transition."

O'Sullivan did not address the potential legal quagmire that could be caused by the mass scrapping of broadband contracts.

It is no surprise that Optus wants a better shot at NBN contracts; last month, it partially attributed its rise across the board in net profit, revenue, and EBITDA to NBN payments.

The telco saw net profit of AU$227 million on revenue of AU$2.43 billion and EBITDA of AU$685 million for the quarter ending December 31.

Revenue for its fixed-line consumer business amounted to AU$467 million -- including AU$28 million in NBN migration and preparation revenue -- up 3.8 percent from the AU$450 million announced for the same period in 2014. Mass market fixed line saw operating revenue grow by 6 percent thanks to growth in its NBN customer base.

Optus recorded that as of the end of December, it had 433,000 HFC customers; 491,000 ULL broadband customers; 88,000 NBN customers; and 32,000 other fixed-line customers.

The NBN has faced delays and doubts about its speeds due to its decision to abandon the all-fibre rollout, with a leak last November revealing that Optus' HFC network is "not fully fit for purpose"; another leaked document in December divulging that the cost to replace or repair the legacy copper network would amount to AU$641 million; and a leak earlier this week claiming that the FttN network is seriously delayed and costing more to connect each premises.

"The fixed broadband infrastructure has not kept pace with demands; it's fallen behind international best practice," O'Sullivan concluded.

"The forecast is also not good. The momentum for future competition in the industry is poor, and left unchanged, this will harm innovation and our global competitiveness."