Risk of competing goals ‘negatively impacting’ NBN quality, affordability: Infrastructure Australia

If the National Broadband Network (NBN) can’t meet all of its stated goals and obligations once the rollout is complete, the ability for Australians to access affordable and high-quality services over the network may be “negatively affected”.

This is according to the Australian Infrastructure Audit 2019, published on 13 August by the nation’s independent infrastructure advisor, Infrastructure Australia, the independent advisory body tasked with strategically auditing the nation’s key infrastructure.

The audit report, which covered areas such as transport, energy and water, delivered a mixed report card for the country’s telecommunication landscape, identifying several challenges relating to Australia’s fixed-line broadband offering, rural and regional availability, pricing and the NBN’s technology mix, among other things.

Unsurprisingly, the report’s telecommunications section focused heavily on the NBN, as one of the country’s largest infrastructure projects. One of the challenges highlighted in the audit report was an “inherent tension between the NBN’s strategic goals”.

It suggested that this tension will ultimately require potential trade-offs between the NBN achieving user outcomes and delivering a return on the capital investment made by taxpayers.

“If all goals cannot be achieved, the ability for Australians to access affordable and high-quality NBN services may be negatively affected,” the report authors said.

Moreover, the report suggested that these tensions raise the question as to whether or not the network will be sold and, if so, how exactly the assets would be divested and therefore how the market will be structured.

“A proposed eventual sale of the NBN to the private sector raises challenges in striking the right balance between realising its value for shareholders and achieving long-term goals for users,” Infrastructure Australia noted. “Decisions about restructuring and sale can affect both short- and long-term service delivery and outcomes for users.”

Another challenge relating to the NBN noted centred on its technology mix having been diversified, meaning that different users will receive different types of connections.

“This change will deliver varied outcomes for users, and some may shoulder higher costs or receive lower-quality services,” the report authors added.

As such, according to Infrastructure Australia, a range of NBN process and performance issues have arisen as the rollout has proceeded and users have migrated to the network, some of which are being dealt with by the company behind the rollout, NBN Co.

In addition, the independent infrastructure advisor flagged the risks that 5G network rollouts in Australia might present to the long-term competitive position of the NBN.

“Looking forward, risks for the NBN include competition from ongoing fixed line services and 5G fixed wireless substitution,” it said. “There is also the possibility of competition in remote locations from emerging low Earth orbit satellite technologies and other satellite technologies.”

However, the report also pointed out a potential silver lining, noting an opportunity for the NBN to leverage these technologies to deliver better services in its existing fixed wireless and satellite coverage areas.

Rural and regional Australians still missing out

Infrastructure Australia’s examination of the services offered to people in rural and regional areas was somewhat tempered by the existing limitations of the various technologies available, even with the NBN rollout underway.

“NBN’s use of fixed wireless and satellite technologies limits the choice of available broadband speeds and download quotas, particularly for remote areas,” it said. “However, these services are often the only option for regional Australian consumers and businesses.

“Although NBN is launching business-grade NBN services, these do not currently extend to [its] fixed wireless and satellite access technologies,” it said, noting NBN Co’s plans to deliver a business-grade satellite service this year.

More generally, however, Infrastructure Australia identified a range of issues with the current telecommunications services available for consumers in rural and regional areas, and for some minorities.

“The specific needs of rural and remote users are often overlooked in upgrades to national telecommunications infrastructure,” the report authors said. “Income, age, disability, education and Aboriginal and Torres Strait Islander status are all factors that influence levels of digital inclusion.”

“Geography also matters,” it said. “In rural and remote settings, the cost of providing telecommunications infrastructure increases and the returns reduce as population densities decline. In some cases, this limits the scope for universal coverage by commercially-focused private sector operators, without government intervention.”

“While Australia’s mobile footprint includes over 99 percent of the population, it covers only one-third of total landmass, meaning there is limited service in particular rural and remote areas, for example along transport corridors,” it added.

However, the audit report also cautiously identified opportunities to improve the telecommunications services for the digitally disadvantaged, and for rural and remote communities and businesses.

“5G mobile technology provides a potential step change in mobile telecommunications infrastructure for Australia, offering huge benefits including faster mobile data, minimal delays and the ability to separate services on the same network. However, the cost of rolling out 5G is high, and without a change in prioritisation, existing issues may be exacerbated in rural and remote areas,” the report authors said.

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.

ACCC fixes software glitch behind early TPG-VHA merger rejection announcement

Australia’s competition watchdog has patched its website content management system (CMS) and apologised, after publishing its decision on TPG’s proposed merger with Vodafone Hutchison Australia (VHA) before it was meant to be made public.

In a somewhat unprecedented move, the Australian Competition and Consumer Commission (ACCC) released a statement on 16 May explaining how it accidentally published its rejection of the proposed TPG-VHA Australia merger a day before it was expected to reveal its decision.

“We apologise unreservedly for this unfortunate and serious incident,” ACCC chief operating officer Rayne de Gruchy said.

“We have thoroughly reviewed all of the processes and information technology systems that led to this error, and we want to assure our stakeholders this incident will not be repeated,” she said.

The publication of the decision to reject the merger sent the share price of both TPG and VHA’s 50 percent stakeholder Hutchison Telecommunications tumbling.

The ACCC said it had conducted a full investigation into the incident and claims that a fault in its website CMS, which has now been rectified thanks to a software patch, was to blame.

According to the regulator, when the information relating to the merger was being put into the back end of the mergers register, a third-party user was trying to access the existing webpage at the same moment as it was being updated.

“Instead of the new information being treated as draft content requiring internal approval, the flaw meant the content was live for eight minutes,” the ACCC said in its statement.

The information went live just before 3PM, giving the ACCC the opportunity to quickly issue a statement confirming the merger decision to both the Australian Securities Exchange (ASX) before the end of the trading day.

The ACCC’s rejection of the merger, which could effectively put an end to TPG’s ongoing efforts to become a major player in the country’s mobile telco market, saw VHA and TPG move to launch legal action against the regulator over the decision.

VHA CEO Iñaki Berroeta said on 9 May that the company remains firmly committed to the merger.

“VHA respects the ACCC process, but we believe the merger with TPG will bring very real benefits to consumers.  We have therefore decided that VHA should, together with TPG, pursue approval of the merger through the Federal Court,” said Berroeta.

The merger agreement between VHA and TPG has been extended to 31 August 2020 to allow the legal proceedings to run their course before the proposed deal lapses.