TPG on NBN rival: 'We are not as bad as Telstra'

TPG has said that Australian Communications Minister Malcolm Turnbull acted too hastily in issuing a draft regulation forcing the company to develop a wholesale product for its fibre-to-the-basement networks.
Written by Josh Taylor, Contributor

TPG has accused the Australian government of acting too hastily in seeking to force the company to offer a wholesale product on its fibre-to-the-basement (FttB) National Broadband Network (NBN) competitor network.

After acquiring a large number of fibre backbone networks from its AAPT purchase, TPG began connecting some of the 500,000 apartments that the company plans to roll out its fibre-to-the-basement services to in Australian capital cities, starting in September last year.

The move, using a loophole in NBN legislation, was not opposed by the Australian Competition and Consumer Commission (ACCC). Such networks have the potential to undermine the cross-subsidised business model for the NBN, where the "capped" price for services in the bush is subsidised by higher usage from places with higher uptake and those areas where the cost to roll out the network is significantly lower.

As a result, Turnbull said that he would move to create a carrier licence condition (CLC) that companies operating such networks must have separate wholesale and retail arms, and offer wholesale products on the same terms and prices as offered to its retail arm.

In December, the minister then said that companies must have the wholesale products on sale from January 1, 2015, but would have until July 1, 2015, to functionally separate the wholesale and retail arms. The delay was designed to give infrastructure owners time to transition to the new rules.

As a result, TPG temporarily removed its FttB product from sale, stating that it did not have time to comply with the requirements of the regulation by January 1.

Turnbull has argued that TPG was given sufficient time, and had provided a submission to the government on the draft regulation that informed the government's December announcement.

In the submission, which was first made public on Friday, TPG explained (PDF) that it had always planned on offering a wholesale product, but that the government had not given it enough time to get the product into the market.

The company was developing an AU$40 per month wholesale product providing 100Mbps download speeds that would have included backhaul at no additional cost. TPG said that this represented a better offer than the AU$27 wholesale product detailed in the regulation, which sits at 25Mbps/5Mbps and doesn't include backhaul.

TPG said it has stopped developing this product in order to comply with the new regulation.

"Once the draft CLC was issued, we were forced to put the implementation of that development work on hold. It would be impossible for us to offer the product at the price point if the CLC is implemented, since the costs associated with compliance with the CLC are huge," TPG general counsel Tony Moffatt said.

Moffatt argued that the government is moving too quickly to force structural separate on TPG, given the leeway Telstra had been offered.

"Even now, in 2014, Telstra is not subject to the same conditions as the draft CLC would impose on TPG. Surely, if Telstra is given 17 years before it is finally required functionally or structurally to separate, TPG should be given at least the opportunity to show that it will not treat its wholesale customers with the type of disregard that should demand regulation," he said.

"If in a few months TPG failed to offer a product with the above characteristics, or was otherwise shown to be unfairly treating its wholesale customers, then an appropriate measure might be considered at that time."

Moffatt said it is wrong to think that TPG would act in the same way Telstra has in the past in discriminating against its retail competitors.

"We do not have the chequered Telstra history: Significant over-recovery of costs, or anti-competitive conduct," he said.

"We also have neither the cash reserves, the profitability, nor the sheer market domination that create for Telstra the incentive to protect their position against wholesale customers, which in turn leads to the need for appropriate regulatory intervention. Neither do we have the legislative fiat and unfettered access to capital of the NBN Co."

TPG's argument to the government that the carrier licence condition should not be issued in the time frame proposed by the government was ultimately not heeded.

TPG's next biggest competitor, iiNet, argued in its submission (PDF) that the condition should be placed on the carriers, and said that the condition should go further and specifically close off the loophole that allowed TPG to expand its network in the first place.

Vocus (PDF), on the other hand, argued that the regulation is too broad, and may capture networks not intended as part of the regulation. The company also said the 1km exemption should be removed, as it is providing a competitive advantage to companies like TPG that had fibre networks in place prior to 2011. Amcom (PDF) was similarly concerned that it might be forced to structurally separate as part of the condition.

NBN Co argued (PDF) that the same non-discriminatory obligations that apply to the services it offers to retailers should also apply to other infrastructure companies that NBN Co will compete against under the carrier licence condition.

The Property Council of Australia warned (PDF) that NBN legislation makes it much easier for telecommunications companies to access apartment buildings to install the networks, and that it will potentially exacerbate the problem of carriers not installing the networks to the correct standard.

The Department of Communications released 15 of the 18 submissions, stating that the last three were made private on the request of the submitters. Missing from the submissions are those from Telstra, Optus, and potentially Vodafone.

ZDNet has sought access to the documents under Freedom of Information.

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