Fletcher cites rule of law after dousing Telstra’s NBN ambitions

Australia’s Minister for Communications Paul Fletcher has doubled down on comments he made rejecting the idea that a sale of the National Broadband Network (NBN) to Telstra, or indeed any telecommunications retailer, would be possible under current legislation

In an exclusive interview with The Sydney Morning Herald (SMH) and The Age, Fletcher said that he did not see any scenario in which the “very clear legislative restriction on the NBN being owned by a company which is also a retailer of telecommunications services is changed”.

This definition, of course, captures Telstra, along with the other primary telcos in the country. Moreover, Fletcher indicated that he believes any sale of the network, the rollout of which is set to be finished next year, would still be “quite some time away”.

Fletcher’s comments come roughly a month after Telstra CEO Andy Penn told The Australian Financial Review that when NBN Co does eventually become privatised, he’d like Telstra to be in a position to participate, with the telco’s standalone infrastructure business unit, InfraCo, “giving us that optionality”.

In a subsequent statement to Telecom Times, Fletcher said that his comments regarding the sale of NBN Co were simply stating the law, as set out in the National Broadband Network Companies Act 2011, that the NBN as a wholesale network cannot be owned by a company that also provides retail services.

“Clearly any such future sale of NBN Co at the appropriate time would be structured in a way that is in the public interest and mindful among other things of the operation and the competitiveness of the broader market,” Fletcher said.

“It is way too premature to speculate on how any such sale would be structured and who may participate in that process.

“The government’s priority is to complete the NBN rollout as quickly as possible and at least cost to taxpayers,” he said.

Fletcher’s reiteration of the legislative restraints on the eventual sale of NBN Co have unsurprisingly been met with enthusiasm by some in the industry. Commpete, an alliance of challenger digital communications providers, lauded Fletcher’s perceived rejection of any prospect of Telstra buying the NBN.

“NBN was created in large part to separate the monopoly access network from Telstra’s retail business to stop anti-competitive market manipulation that had made Australia one of the least competitive telecommunications markets in the world,” Commpete said in a statement.

“Recent speculation that Telstra would buy the NBN would signal the end of this commitment to competition, and Minister Fletcher has done the right thing by ruling it out,” the alliance added.

While Fletcher’s comments regarding NBN Co’s privatisation have quelled concerns in the industry that may have emerged amid speculation that Telstra would vie for the network builder, his comments about NBN wholesale pricing have been met with discord.

In his interview with the SMH and The Age, Fletcher effectively ruled out Government intervention in wholesale pricing for services on the network, instead suggesting that “the sensible approach is for the board and management of NBN Co to make pricing decisions”, within regulatory bounds.

Again, Fletcher has subsequently doubled down on his comments, pointing to existing arrangements with the country’s competition watchdog and an ongoing industry consultation process with regard to pricing.

“NBN wholesale pricing decisions are a matter for the NBN Co board and management,” the Communications Minister told Telecom Times, noting that NBN Co’s wholesale prices are set in accordance with the caps specified in its Special Access Undertaking (SAU) with the Australian Competition and Consumer Commission (ACCC).

“In turn, retail service providers need to make their own commercial decisions when setting their retail prices,” Fletcher said. “NBN Co commenced a consultation process with industry on 20 June 2019 to review its wholesale products and prices.

“This process will continue over the coming months so NBN Co’s wholesale offerings meet the needs of both retail service providers and consumers,” he said.

However, wholesale pricing has been a matter of concern for many retailers, with the country’s largest telecommunications provider, Telstra, being among the most vocal.

“…as we migrate to the NBN, with the current wholesale pricing, the margins will – the EBITDA margins – will trend towards zero,” Telstra’s then CFO Robyn Denholm said in the company’s HY19 financial results briefing. “And that is because of the wholesale pricing aspect. We’re working like crazy to reduce our cost to connect and our cost to serve for NBN.”

Optus, meanwhile, has also flagged wholesale pricing as an issue that needs to be addressed for NBN services to be provided to end customers in a way that is sustainable in the long-term.

“Optus supports the view that a further assessment of NBN’s pricing structure is a priority. This will help to ensure NBN retailers such as Optus can continue to deliver great value to customers on a more sustainable basis,” an Optus spokesperson told Telecom Times. 

“We also encourage NBN remove the CVC component in their pricing, which is an ineffective way to charge for this infrastructure and is out of step with retail markets,” the spokesperson said.

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