Issue: 44/08

NBN Update

November 12 , 2008

ATUG Priorities 2009

ATUG is working now on the program of Information and Networking events for 2009 and we are keen to understand the focus areas for members in the coming twelve months so we can target our information gathering, updating and networking events on the topics of most interest to most members.

We are also keen to focus our advocacy work on the issues of most concern to members in 2009.

To help us do this we would ask all members – end users, industry and expert to complete our online survey on Priorities for 2009.

The results of the survey will be kept anonymous but made public in aggregate to guide ATUG discussions with industry, policy makers and regulators.

To encourage members to complete the survey ATUG is offering a Free Pass to the ATUG 2009 Policy Update event including Gala Dinner valued at $995. The prize will be drawn by ATUG Chairman David Swift at the ATUG Board meeting in November. Surveys need to be completed by 15 November.

To complete the survey please Click Here

NBN Update

Among much discussion about the NBN at a conference in Sydney last week, one comment from a battle weary end user summed it up, “It sounds like the telcos are in a war – except we the end users, feel like the casualties!”

This week’s Opinion is an Update for members on ATUG’s position on the NBN Regulatory issues with references to a number of recent contributions to the debate from other players and their advisers.

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 highlighted and the relevant NBN RFP objectives are summarised for each topic.

The Main Game issue

ATUG: 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.

NBN RFP objective: continues to promote the long-term interests of end users.

Professor Joseph Stiglitz writes in an article on the financial sector reprinted in AFR Review page 6 on Friday 7 November puts the issue at stake here clearly:

…The downturn is likely to be so severe partly because we have succumb to the opinion that markets work best by themselves unfettered by government regulations. But the people making this argument are the ones who have been served well by it. We can do far more to protect against self-interest. In particular we need to improve the incentives...so that their interests align with those of the society and the economy they are meant to serve.

The point is just as relevant to the NBN decision in the telco sector.

And is the same point made by the High Court in its March 2008 decision that the telecommunications access regime set out in the Trade Practices Act did not amount to an acquisition of Telstra’s property. For ATUG this was a welcome assurance about the basis for competition in telecommunications and the rightful place for regulation in regard to essential infrastructure and why it is crucial that the regulatory framework for the NBN is determined ahead of construction.

The High Court in paragraph 33 of its judgment says:

“The objects thus identified in the 1997 Telecommunications Act and in Part XIC of the Trade Practices Act are wider than and different from that narrow self-interest which, statute apart, is all that one participant in a market would ordinarily consult when striking a bargain with another participant in that market.”

The Whack from the WACC?

ATUG: 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.

NBN RFP objective: enables low access prices that reflect underlying costs while allowing the Proponents to earn a rate of return on their investment commensurate with the risk of the project.

Among the raft of papers that have been commissioned by various parties to explore the issues is one commissioned from CIE by the Competitive Carriers Coalition which goes to the issue of what the NBN is going to cost end users.

The full paper The Telstra Return on a National FTTN Network – Community Impacts (June 2008) is available here

At page 5, Table 1 presents the WACC (Weighted Average Cost of Capital) estimates for Telstra's FTTN network and an alternative supplier's network. This table also presents estimates of the revenue required by each
network to achieve the targeted returns to capital.

Scenario 1 is for $4.6 billion, which is Telstra's estimated cost to build a FTTN network in the five major capital cities and the Gold Coast. Scenario 2 is a $9.3 billion national network, which includes Telstra's $4.6 billion PLUS the Government's investment of $4.7 billion. Scenario 3 covers the recent suggestion that the cost of the FTTN network would be up to$15 billion.

Based on the assumptions in the report, the key impact is that the additional revenue that Telstra would need to achieve its targeted return to capital on an asset of $4.6 billion is on average $443 million per annum. If the network costs were $9.3 billion, the additional revenue that Telstra would need to obtain each year is $897 million. If as reported earlier the price for broadband was locked in for 14 years the additional revenue of $443 million per annum over 14 years is equivalent to $6.2 billion.

A lot of money to be found from the communications budgets of businesses and households!

Particularly in light of the Ai Group report, High Speed to Broadband – measuring industry demand for a world class service, which confirms that 66% of businesses believe that their business will benefit greatly from faster broadband but also reports that nearly half of the respondents will not pay a premium for the service (47.9%). A further 26.2% did not know at this time whether they would pay a premium or not. A quarter of all companies surveyed indicate a willingness to pay a premium price for their business to gain access to higher speed broadband (25.8%) http://www.aigroup.asn.au/scripts/cgiip.exe/WService=aigroup/ccms.r?PageId=4569

What’s in a name? - Structural Separation vs No Conflict Open Access

ATUG: 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:

clear separation between wholesale and retail units and
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

NBN RFP Objective: facilitates competition through open access arrangements that ensure equivalence of price and non-price terms and conditions, and provide scope for access seekers to differentiate their product offerings. ….If a Proponent proposes to supply both wholesale and retail services it should demonstrate what structural measures or models it proposes be put in place and maintained to prevent inappropriate self-preferential treatment and ensure that effective open access is achieved on the terms required by the Commonwealth. …Proponents should describe the proposed ownership and operational structure of the NBN. This should include….any functional or structural separation of network ownership from wholesale and retail businesses;

While Telstra’s comments focus on Structural Separation, ATUG is more interested in the No Conflict Open Access model outlined by Axia Media at ATUG 2008 http://www.atug.com.au/ATUG2008/Presentations/ArtPrice.pdf

The common attribute across break-through implementations is to put the NGN fibre grid in a no-conflict open access business model by separating ownership.

Interestingly this is now the choice in Singapore with incumbent SingTel choosing to be part of the consortium to build the NBN via a fully separated structure. The Singapore model is outlined in the Consultation Doc available here

The UK approach by OCFOM and BT was outlined in Grant Forsyth’s Presentation at ATUG 2008 – Overseas Developments: Successes in A functionally separated world at,
http://www.atug.com.au/ATUG2008/Presentations/GrantForsyth.pdf

Customer Experience – Cabbages or Kings?

ATUG: 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.

NBN RPF objectives: minimum 12 Mbps dedicated download speed; supports symmetric applications such as high-definition video conferencing; is able to support high quality voice, data and video services; provides benefits to customers by providing choice to run applications, use services and connect devices at affordable prices; is consistent with national security, e-security and e-safety policy objectives

ATUG has been concerned for some time about the difficulty end users have switching providers in the broadband market – reminiscent of early difficulties in both the fixed line and mobile markets. In those markets the delays were fixed by industry with regulator oversight. The same problem has now arisen in the Broadband market. The difficulties end users experience in finding out whether they have other service options, in being without their broadband services for weeks, in having services disconnected and not properly reconnected are all evidence of a market that is not yet effectively competitive. These problems mirror the access war stories from industry competitors – not being able to access exchanges, having long delays to have work completed.

This topic has already been addressed in the UK after similar customer problems. An agreed Broadband Migration process was developed and has reduced delays significantly:

In December 2006 Ofcom published a statement on the broadband migration process which contained a new general condition regarding Migrations Authorisation Codes (MACs), the codes required to switch DSL broadband provider. Under the new condition ISPs are obliged to provide customers who are out of contract and request a MAC with the code within five working days. This has made it easier for consumers to switch between DSL broadband services, including to LLU providers.

The same approach is needed in Australia now and well ahead of the roll-out of the NBN. Clear, quick processes for switching providers need to be worked out by industry and monitored by regulators to ensure that end users wind up with real choice in the NBN environment. ATUG will continue to work on this through the ACMA’s Consumer Consultative Forum in the absence of industry action.

Broadband, broadband everywhere……

ATUG: 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.

NBN RFP: covers 98% of Australian homes and businesses; uniform retail prices on a national basis.

Much discussion has focused on whether the NBN will achieve 98% and what happens to the 2%. ATUG has always been focused on 100% of Australians being connected to broadband that is fast enough to be “game changing”. To achieve this, we will need decisions supporting the Regional Telecommunications Inquiry Review Committee’s recommendations (including what to do about Universal Service Obligations) and more effective delivery of the Australian Broadband Guarantee program – 100% of Australians wherever they are - until the NBN turns up!

ABG could be a very effective “safety-net” program which driving innovation and competition, as well as ensuring underserved areas become well served with broadband BUT the program has to stabilise and get into full swing.

At the moment DBCDE is still looking at whether 3G mobile services qualify as commercial broadband for the purposes of the ABG scheme – which would mean that if they available in an area end users have to take those services.

Feedback from ATUG members is that mobile broadband is a great complement to fixed broadband services but NOT an effective substitute for service quality and price reasons. ATUG wants end users in regional areas to have maximum choice between services and providers and to have the best broadband possible until NBN standard services are available.

The ABG definition of “Metro Comparable” relies on guaranteed minimums for availability and speed and a guaranteed maximum for price. Summary requirements for Threshold Services are:

Access to the Internet at a peak download/upload Data Speed of at least 512/128 Kbps and at least 3GB per month usage allowance
A price to the Customer over three years of no more that $2500 (GST inclusive)
Availability 99 per cent of the time (averaged over a quarterly period) with average data download and upload Data Speeds of at least 60 per cent of the specified peak Data Speeds at least 75 per cent of the time
Shaping of data to no less than 64 Kbps at no cost or excess data charges of no more than five cents per megabyte

ADSL can deliver the required service levels and can be tested against the criteria set out. Fixed wireless services can deliver the required service levels and can be tested against the criteria set out.

ATUG sees the mobility that 3G wireless data can provide as a very useful complement to a primary “fixed” service but not as an effective substitute for a fixed broadband service.

Conclusion

Keeping up to date with everyone’s views and with the “independent” expert’s views and the commissioned reports and carefully managed outcomes is a Herculean task.

Most of the views are in submissions to the DBCDE NBN Regulatory process:
Click Here

or to the Senate Inquiry - http://www.aph.gov.au/Senate/committee/broadband_ctte/submissions/sublist.htm

The intensity of debate is understandable:

the topic is the total upgrade of Australia’s fixed line communications platform into the next 25 years and beyond;
at a time when such infrastructure is primarily privately funded and owned;
when it is important to reset the industry’s structure so the incentives for competitive behaviour are strong and sustainable;
so that outcomes for end users enable game changing productivity and innovation throughout the entire economy; and
reliance on regulation can be reduced.

The Minister and the Government should stick to their guns and focus on delivering the National Broadband Network on the terms outlined in the RFP.