Issue: 25/08

ATUG NBN Submission

July 02, 2008

ATUG lodged a submission to the Government on the regulatory issues associated with Australia’s National Broadband Network. ATUG’s submission was based on member discussions and Forums during 2007 and 2008 and on our assessment of global developments and trends.

ATUG and its members are focused where the Government has said it is focused - on the critical importance of future telecommunications regulatory settings, including ongoing consumer safeguards, to ensure the best outcomes for all Australians and the competitiveness of the economy.

ATUG’s key suggestions are:

• Policy objectives for the NBN regulatory framework must include being in the Long-term Interests of End Users and be complemented by an effectively competitive services market place. • Affordability is the key to take-up. Regulation must support the cost effective building of the NBN as well as recognise that effective competition is the strongest tool for delivering affordable prices. An entry level “safety-net” package should also be developed. • End User Choice – network design is central to competition and choice. Only designs that promote competition should be accepted. When infrastructure competition is not possible, services competition based on open access and service equivalence at a wholesale level must be ensured. • Wholesale Service Equivalence in wholesale services together with effective services competition can only be assured by establishing:   o clear separation between wholesale and retail units and o a new pro active, pro competition independent oversight body, NBN Australia, with the task of implementing the Open Access and Equivalence Frameworks for Australia’s NBN, using facilitation and mediation • Customer Experience in the NBN environment must be carefully managed to ensure a successful transition and good end user outcomes. Service quality and security standards must be established at a level to reflect the key role of the NBN in the lives of all Australians. • Ubiquity – all Australians must be connected to the NBN. Ubiquity is not only about network availability but also about affordability and accessibility. When all Australians are connected to the NBN, the real potential of this for productivity, growth and innovation will be open to end users in every sector of the economy and community, and in all regions of Australia.

ATUG looks forward to an opportunity to comment on regulatory amendments to facilitate the roll-out of the NBN. It would not be acceptable for policy, legislation and regulation affecting the long-term interests of end users to be “negotiated” without public debate.

The full submission is available on the ATUG home page, www.atug.com.au

Other views are being considered, for example, Telstra’s Chairman

“ The debate about Australia’s telecommunications policy is intense and hard fought. That is as it should be – these are vital issues. They merit and deserve careful scrutiny. But that scrutiny will not serve its purpose if it is built on deceptions, misconceptions and half-truths, rather than on credible evidence, reputable analysis and widely-shared truths. It is time to get serious. It is time for principled decision-making that is based on facts and data from Australia and around the world….. But what about “separation lite”, of the kind being attempted in the UK and New Zealand? Isn’t that the model we in Australia should adopt, as it allows the network operator to retain the efficiency of vertical integration while providing safeguards for competitors?......”

ATUG agrees with the need for the need for facts and data so we asked our colleagues in UK and NZ for their reaction to the speech, from a User Group perspective.

Telstra Chairman’s speech

“Looked at carefully, the arrangements imposed on BT make very little sense: they combine the insight of Jim Hacker with the clarity and directness of Sir Humphrey Appleby GCB, MVO, MA (Oxon) of “Yes Minister” fame. They undermine the efficiencies of integration without any obvious, corresponding gain. Moreover, they are designed around the existing generation of wholesale services and cannot be readily adapted to the next. And even then, they provide access seekers with fewer and less effective safeguards than we in Australia have long had in place”.

CMA UK:

The “obvious, corresponding gain” is in a thriving, largely deregulated retail market and effectively policed equality of access to the Openreach network and BT’s wholesale products and services for ISPs. From the user point of view, “we’ve never had it so good” in terms of better choice, higher quality and lower prices. The claim that “they (ie: the arrangements imposed on BT) are designed around the existing generation of wholesale services” is only partially true and his next assertion: “and cannot be readily adapted to the next” is just not so. In very simple terms, BT’s formal, legally enforceable undertakings to Ofcom are intended to be a long term fix to the competitive problems in telecoms markets, not a short term measure. Take a look at http://www.ofcom.org.uk/telecoms/btundertakings/ Sure, things here aren’t perfect, but they’re a damn sight better than they were before functional separation (FS). There is solid evidence that neither investment nor innovation has suffered as a result of FS, and the overall size of the comms market in UK is growing. Do we have a beef? Yes – we need the sort of resourceful, inventive, dynamic approach to universal broadband that Australia has. Then we can crow again!

Telstra Chairman:

“Obviously, being the UK, the “good chaps” who designed and implemented the policies, and their advisers, could not be said to be at fault, nor bear the shame of failure; rather, it was BT that paid the price, with costly requirements being imposed upon it to separate parts of its wholesale operations from its retail side. “

CMA UK:

If he means that BT has lost its dominant position and is experiencing the full force of competition, to the benefit of the consumer, then he’s right!

Telstra Chairman:

The best that can be said for the New Zealand arrangements is that they seem destined to be highly transient. In effect, Chorus will not be required to supply the key access service in the next generation network, that is, the bitstream service. In other words, the Chorus arrangement, for all of its huge set up and operating costs, is not intended to persist in any meaningful form into the future broadband network. As a result, as Telecom makes the transition to that network, it is likely that Chorus will decline into irrelevance, ultimately to disappear.

TUANZ:

Operational separation of Telecom NZ has won wide acclaim universally in New Zealand - from users, Telecom's competitors, government, opposition parties, and Telecom itself. It is seen as the single most important step forward for competition since privatisation. This article from the NZ Herald is a fair reflection of the state of play. All is very good. Click Here

Telstra Chairman:

Indeed, far from structural separation, the current French and German approach, like that in the United States, is not to require third party access to next generation networks, so as to stimulate genuine facilities-based competition.

WIK Research released on 25 June 2008 outlines the impact of this approach:

Without regulatory intervention, the degree of replicability of NGA infrastructure is rather limited.

o Absent regulation, just one second-mover entrant in Germany could
theoretically replicate the incumbent’s FTTC roll-out for 14% of the
potential customer base at the maximum.

o Replicability of the incumbent’s FTTH network in France is not
possible without access to sewers (available in specific areas),
infrastructure sharing and regulated access.

The WIK Research was commissioned by ECTA, The European Competitive Telecommunications Association, and looked into the business case for next generation fibre networks. Click Here

“The research covers six major countries (Germany, France, Spain, Italy, Portugal, Sweden) and combines results from these with independent research carried out for regulators, Governments and the OECD in other countries, which reaches a similar conclusion.

The WIK study demonstrates that, because of substantial economies of scale, replication of fibre access lines for high speed services is not economically viable on any widespread basis.

The three key reasons are that incumbents already own ducts on a nationwide basis; they can make substantial efficiency savings compared with their current network structure; and they already have the number of required subscribers that would pay for the investments simply by switching customers from their existing lines. In some of the countries examined, significant viability was found for incumbents to roll out next generation access networks even with a relatively conservative return on capital of around 10%, which is commensurate with returns made on today’s regulated copper access networks.

Incumbents have accepted in principle the concept of open ducts, but this research clearly shows this is not enough. Europe needs open networks and not just open ducts to generate a competitive environment and to develop an optimal degree of replicability and investment in a next generation access environment. Dominant firms should construct their networks from the outset to foresee access. Open networks in a competitive next generation access environment make good business sense and incumbents should improve their by business cases pursuing a positive attitude to infrastructure sharing and access.”

The evidence seems clear to ATUG - the objective of creating an open access National Broadband Network designed to enable many service providers to deliver a wide range of services to informed end users across Australia at affordable prices is the right one.

Despite the widely divergent views pervading industry at the moment, we believe the Government should establish a new proactive industry facilitator to ensure the timely roll out of the new infrastructure in a co-operative way. ATUG’s model is NBN Australia.

If the projected benefits of broadband services are to be shared across the nation, the Government needs to adopt a direct approach to the rapid development of the Broadband Industry. Australia needs an industry structure that supports innovation and competition. The light-touch, industry self regulation approach of the past has clearly failed to deliver advanced broadband services to Australia and will not deliver the NBN.

The Government needs to press ahead with its proactive approach to the development of the National Broadband Network, and the broadband Services to be carried by the network, so that end users can enjoy the opportunities offered by innovative broadband services as quickly as possible.

ATUG will be taking this message to regions across Australia as the 2008 ATUG Regional Roadshow starts in Orange, NSW this week. Click Here