Vodafone pushes mobile infrastructure sharing again

With just 7.5 percent geographic coverage, Vodafone is continuing to push to be permitted to share mobile infrastructure with Telstra and Optus through USO reform, the mobile blackspot program, and domestic roaming.

Vodafone Australia, the telecommunications carrier with the least network coverage across rural and remote Australia, has once again argued in favour of infrastructure sharing in a bid to lower the costs it faces to build out mobile towers across the country and to "provide incentives" for future possible investment.

Rural coverage has been a recent pressure point between the three major Australian telcos, with Vodafone, Telstra, and Optus also butting heads on the wholesale mobile domestic roaming issue -- whereby Vodafone would be permitted to piggyback off Telstra's mobile infrastructure -- and competing against one another to take part in the federal government's mobile blackspot program.

Vodafone chief strategy officer Dan Lloyd, speaking at the Productivity Commission's telecommunications universal service obligation (USO) hearing in Sydney on Wednesday morning, said the current USO system has "perverse incentives" and a lack of transparency.

The USO mandates Telstra as the fixed-line phone service provider of last resort, giving the incumbent telco hundreds of millions of dollars each year for the installation and maintenance of fixed-line services.

Instead of one telco being gifted money to continue running an out-of-date service, Lloyd said it should instead go towards promoting infrastructure sharing that has seen "enthusiastic" uptake "in virtually every other country".

"There's a couple of things [that should change], but I think all of them fall into the category of infrastructure sharing, and it always struck me after working for 10 years on 25 other Vodafone countries to see the extent of enthusiastic infrastructure sharing that had lowered the cost of deployment and therefore increased incentives for infrastructure investment, while also preserving and creating competition," he said.

"It really strikes me that in Australia, the country -- because we've got 7.6 million square kilometres and a population density outside the cities of below one -- that most needs infrastructure sharing has some of the least infrastructure sharing."

In taxpayer and industry money over the last four years, the USO has cost AU$171 million a year -- AU$700 million over four years -- according to Lloyd, who said this money could have been used to instead build 1,800 new mobile base stations, which cost around AU$500,000 each.

When taking Telstra's contributions toward the USO into consideration, Lloyd said spending amounted to AU$1.2 billion over four years, or 200,000 new mobile base stations.

"That would have allowed us [Vodafone] to match and exceed Telstra's regional network by over 1,000 sites, or about 300,000 square kilometres," Lloyd argued -- although this logic relied on the assumption that Telstra would be partially funding Vodafone's mobile network expansion.

The USO simply reinforces Telstra's "monopoly" over telecommunications provision, according to Lloyd, as it allows the telco to use its fixed-line network to build mobile infrastructure at a lower cost compared to its competitors.

"When Telstra comes to deploy a regional mobile network, their costs of deploying it is exponentially lower than anyone else's, because they've already got the sunk cost of the transmission, the sunk cost of the regional exchange, and putting a tower on top of the regional exchange is available to them at a far lower incremental cost," Lloyd said.

"So even if you don't think [the USO] is a direct subsidy [of Telstra building out mobile services], the competitive impacts of this, the barriers that it raises to anyone else deploying competitive infrastructure ... means that the market is not able to drive the infrastructure to the level that it should, and therefore creates artificially a bigger gap in universal service than would otherwise be there."

Telstra's monopoly is being even further entrenched thanks to the mobile blackspots program, Lloyd said, as under rounds one and two, Telstra has been allocated around 75 percent of the sites.

The government failed in one of its objectives for the blackspot program, which was to give preferential collocation and preferential transmission pricing, he added, as Telstra is not collocating other providers on its new sites.

"The implementation of that has failed to deliver that second objective ... the 429 Telstra sites in round one, as we understand, there are virtually none that have other operators collocated," Lloyd claimed.

"We think that's a huge opportunity lost for 150,000 square kilometres."

Vodafone will build out just four mobile base stations under round two, after being responsible for 70 under round one, and is also investing AU$9 million of its own funding in constructing 32 new mobile base stations across the country.

By comparison, Optus will be building 114 new mobile sites under round two, while Telstra is responsible for 148, down from the 429 it was allocated under round one.

In terms of providing fixed-line services for remote areas, Lloyd also took a swing at the National Broadband Network (NBN) company, and instead encouraged the network expansions of companies such as Red WiFi, which has been rolling out a 15-25Mbps fixed-wireless service to NBN customers who are unhappy with being on NBN's Sky Muster satellite service.

"Again, this goes to the point of competition; there must be a role for, and there should be incentives for competition so that we don't end up with a single inflexible model where NBN tells people what technology they get and they have no alternatives," he said.

Also speaking at the Productivity Commission's USO hearing, Optus vice president of Corporate and Regulatory Affairs David Epstein agreed that the USO as it stands now is "not fit for purpose" -- and would cost AU$3 billion over the next 15 years if it remained the same.

The government needs to renegotiate or cancel its existing agreements with Telstra and establish a new baseline universal service for voice and data that is both technology and vendor neutral, Epstein said, and includes such new technology as over-the-top, voice-over-IP, and voice-over-LTE services in order to provide greater choice.

"The philosophical premise from which you should start: Adopt a baseline standard; ensure that it's subject to review; and ensure that it's not likely to, one, become a constraint through obscelence in that it forms a cap rather than a baseline, and two, that it doesn't form the basis for entrenched economic interest to develop as a further inhibitor," Epstein recommended to the commissioner.

In replacement of the existing USO, Epstein spoke in favour of the mobile blackspot program as well as the small cells that Optus is installing across Australia, which utilise satellite services rather than expensive mobile towers having to be built out.

However, Epstein acknowledged that mobile coverage cannot fully replace fixed-line services, especially given the gap between satellite and mobile coverage -- which amounts to around 90,000 people, according to Optus head of Interconnect and Economic Regulations Andrew Sheridan and the Productivity Commission.

"We are not in any way saying that commercial mobile networks are somehow a substitute for 100 percent geographic coverage; they are clearly not," Epstein said.

"We are talking about a task where mobile networks can play part of a role, where the NBN can play part of a role with satellite and all sorts of technologies ... a tapestry can solve part of the issue that people are still concerned about, which is that tension between population coverage and geographic coverage."

The Productivity Commission's draft report into the USO, released in December, showed that although Vodafone claims to have 96 percent of the Australian population covered by its network, or 23 million people, only 7.5 percent of the continent's landmass is covered.

By contrast, Optus claims 98.5 percent population coverage and covers 15.6 percent of the nation, while Telstra's 99.3 percent of the population amounts to covering more than 31 percent of the landmass with its mobile network.

Speaking of the "massive gaps" between mobile coverage and satellite coverage, Australian Communications Consumer Action Network (ACCAN) CEO Teresa Corbin said the copper continuity scheme should continue until a better alternative to the often complained about NBN satellite service is developed, or the service is improved.

"While we acknowledge the logic in transitioning to more modern infrastructure, this does not escape the fact that geographically, a majority of users would be serviced via satellite -- including areas that are currently serviced by the existing copper network," Corbin told the USO hearing.

"As a coalition, we are adamant that a reformed USO must not result in a degradation of existing services."

ACCAN last year formed a coalition to fight for better telecommunications services in rural and regional Australia, with five goals including a technology-neutral USO providing voice and data; better download quotas across Sky Muster; and a longer-term mobile expansion program.

Telstra has previously said that it believes there is "absolutely no chance" that the USO will be removed. The Productivity Commission's final report is set to be handed to government by April 28, 2017.