Chapter 3 Potential impact on the Greenfields fibre provider market
Introduction
3.1
Where relevant, the issues raised in the context of the proposed new
sections of the Telecommunications Legislation Amendment (Fibre Deployment) Bill
2011 (the Bill) have been included in Chapter 2. This chapter outlines the
remaining competition issues which relate to the policy which are complementary
to and underpin the proposed Bill.
3.2
A number of contributors to the inquiry were concerned about the impact
on competition in the Greenfields fibre provider market the Bill may have in
combination with the Government’s Fibre in new Developments policy. The
issues contributors raised follows.
NBN Co as fibre provider of last resort
3.3
As previously outlined, in addition to requiring developers to install
passive fibre-ready infrastructure in new developments, the policy intent
underpinning the Bill is to:
- Enable
NBN Co Ltd (NBN Co) to be the fibre provider of last resort in new
developments, including broad acre estates, urban infill and urban renewal
projects within its long term fibre footprint. This will give developers the
option to use NBN Co and other fibre providers to install fibre infrastructure
for new developments.
- Enable Telstra to
have a transitional role for providing services for infill developments of less
than 100 premises that do not yet have fibre. Developers will also have the
option to use other telecommunications providers. Telstra will be the retail
provider of last resort.
3.4
The Greenfield Fibre Operators of Australia (GFOA)[1]
raised concerns that the Bill in combination with the relevant policy enables
NBN Co to be the ‘first choice provider’ in Greenfield developments, rather
than the fibre provider of last resort. The GFOA stated that this will serve to
diminish competition in the Greenfields fibre provider market.[2]
3.5
In respect to the potential to diminish competition for Greenfields
fibre provision, the GFOA raised the following issues:
- ‘It appears to be the
intent of Government and NBN Co, that it plans and needs to be the monopoly
provider of [Fibre to the Premises] FTTP in Greenfields developments;
- NBN Co is in fact
promoting itself as the "Provider of first choice", not "last
resort";
- The Australian
Government is ignoring its own Competitive Neutrality Policy for Government
Owned Businesses[3], like NBN Co. The policy
dictates that no competitive advantages should be given to Government Owned
Business over private sector competitors by virtue of their public sector
ownership, nor by using their fiscal or legislative powers;
- The Fibre Deployment
Bill should not aid to prevent or inhibit private sector competition, impose
unknown costs or time burdens on the development industry or impose NBN Co
network design standards and specifications on the telco industry (such as
GFOA);
- The Government should
fund deployment of FTTP that meet industry standards and specifications for
performance and if operated by "Open Access" "Wholesale
only" carriers not just NBN Co providing the fibre, pits and pipes are
preferably vested in the [Universal Service Obligations] USO Co or Local
Authority or other public institution not to be sold off at some time in the
future.’[4]
3.6
The GFOA cautioned that Competitive Neutrality Policy and the
competition reforms of the past twenty years are at risk if ‘the Bill is not
amended to provide for protections and encourage competition in deployment and
operation of fibre networks in Greenfields.’
3.7
These views were reiterated by OPENetworks, Comverge Networks and
TransACT separately to the GFOA.[6]
3.8
To remedy the concerns outlined by the GFOA, it advocated:
- Fostering competition
‘in network pricing and services and innovation by allowing and encouraging
existing and future carrier operators in Greenfields
- ‘Fix industry (not
NBN Co) standards and specification for FTTP networks by mandating
[Communications] Alliance standards and specifications as ratified by the
[Australian Communications and Media Authority] ACMA.
- Adhere to the
relevant aspects of Australian Government Policy for Competitive Neutrality.
- Direct NBN Co to
focus on Brownfields and, in Greenfields, to be the provider of last resort and
only where commercial carrier/ operators are unable or unwilling to deploy FTTP
networks that:
- Meet
industry standards and specifications developed by Comms Alliance and ratified
by ACMA and which meet or exceed the performance targets of the NBN (at least
100mbps) at operational prices that are less than NBN Co's published prices for
comparable products;
- Are operated by licensed carriers on an "open access" wholesale only
basis";
- Are
funded by either Government, the USO Fund or NBN Co to the same extent of $1500
per lot in the new development;
- Where
ownership of the pits, pipes and fibre is transferred to USO Co or Local Councils
(in preference to NBN Co) to allow for future access subject to a license to
those carriers to use the network pit, pipes and fibre only for the provision
of services to [Retail Service Providers] RSPs at prices capped by [the
Australian Competition and Consumer Commission] ACCC regulation and to Public
Utilities or Local Councils and Authorities for the benefit of the public or
the communities under development.
- Release more back
haul black spot contracts to fix the major impediment to providing advanced
broadband in non-metro areas of Australia.’[7]
3.9
Telstra commented that the GFOA’s concerns do not relate to the Bill,
but to Government policy and have either been addressed through consultation or
should be considered separately to the Bill. Telstra stated:
the GFOA ... does not appear to raise concerns with the
content of the Fibre Deployment Bill itself (namely the optical fibre
requirement, the fibre ready facilities requirement, the fibre ready
installation requirement and the facilities access regime to fixed line
facilities owned by non-carriers). Rather it goes to aspects of Government
policy which, while being important, have either been addressed through
consultation or should be considered separately to the Bill in question. We do
not believe these concerns should not cloud the Joint Committee’s understanding
and support for the passage of the Bill itself which, in Telstra’s view, will
provide much needed certainty to the developer and infrastructure community on
the provision of fibre and fibre ready facilities in new developments.[8]
3.10
The Government responded to the concerns raised in respect to the impact
on competition and stated:
The GFOA argues that there will be less competition if NBN Co
dominates the new developments market. As noted, the government’s policy does
not preclude competition to provide infrastructure in new developments, or even
to provide competing infrastructure in such developments. The practical
reality, however, as evidenced by current practice, is that there will
generally be a single fixed line network operator in a development. This will
be the case regardless of whether the development is serviced by NBN Co or
another provider. Recognising this, a key objective of the NBN policy is to
create the circumstances for robust retail level competition, whether on the
NBN platform (which is subject to specific regulation) or on another platform
(which would be subject to the level playing field rules).[9]
3.11
The GFOA has indicated that two of its members have lodged complaints
with the Australian Government Competitive Neutrality Complaints Office (AGCNCO)
situated within the Productivity Commission. The AGCNCO is yet to report on the
matters raised.[10]
RF Signal installation
3.12
OptiComm highlighted the importance of maintaining competition in the Greenfields
fibre provider market and commented that fibre providers offer immediate
options not currently available for ‘free’ through NBN Co. These include:
... the
delivery of Free-to-Air and Pay TV over the single fibre to the premises
negating the need for unsightly antennas within an estate, the provision of
community CCTV and the delivery of new and exciting applications like IPTV[11], Smartgrid and eHealth.[12]
3.13
In respect to the RF (Radio Frequency) issue, the Urban Development
Institute of Australia (UDIA) commented that NBN Co policy provides that it
will not ‘install an RF signal in any fibre networks that they or their agents
install.’ This is in contrast to developer practice to have a ‘clean roof’
policy, ‘piping free-to-air and pay-tv into homes through an RF signal as part
of their fibre rollout.’
The UDIA stated the impact of NBN Co’s policy is that developers or the new
homebuyer will be required to pay for these items in addition to the fibre
ready infrastructure. The UDIA commented:
NBN Co’s policy not to install RF signals means that now
developers are faced with the dilemma of either going back to a policy where
they need to install aerials on rooftops (at the cost of about $1,000 per
dwelling), or use a private fibre provider who can put an RF signal through the
fibre they install rather than using NBN Co. This is resulting in the situation
whereby in some estates the developer (and therefore the new home buyer) is
required to pay for everything in relation to the installation of fibre, not just
the pit and pipe, which appears to be contrary to the intent of the
Government's policy.[14]
Universal Service Obligations
3.14
There were suggestions that the funding available for Universal Service
Obligations (USO) as provided to Telstra, could be made available as a subsidy
to minimise the cost of fibre infrastructure in new developments,[15]
thereby negating any negative impact of high costs on competition amongst fibre
developers.
3.15
In this respect OptiComm suggested that funds should be provided in the
amount of about $1500 per dwelling unit to create a ‘level playing field’ for
fibre deployment in new developments. OptiComm stated:
Consideration of allocating funds, be it from the USO fund or
via soft loans, to the private sector (provided they ensure they meet wholesale
only, open access requirements and also deliver the same outcome as the NBN) so
to level the “playing field” and provide Developers with a wider, richer choice
of options. The funding should be in the order of $1,500 per dwelling unit.[16]
3.16
Telstra stated that it does not receive funding under the USO for new
developments, but rather receives return on the costs expended for assets over
the long term use of those assets. Telstra stated:
Telstra as the [Universal Service Provider] USP for Australia
receives funding for the shortfall that it incurs in providing standard
telephone services. In Telstra’s view, the amount of the funding is not
sufficient to cover the shortfall incurred. This shortfall (between costs and
revenues) occurs in high cost areas of Australia. High cost areas of Australia
are predominantly in rural and regional parts of Australia where due to
distance, density and terrain, the cost to supply services is greater than the
amounts received from customers. Historically, Telstra would not have suffered
such a shortfall in respect of most new developments as it would earn a
positive return on the initial build costs over the long term life of those
assets.[17]
3.17
Further Telstra explained that the Government has not chosen to reallocate
USO funding, but has enabled NBN Co to be the provider of last resort in new
developments and subsumed the cost of these developments in the overall build
of the NBN. Telstra explained:
It is important to note that due to the higher cost of
installing fibre rather than copper infrastructure and increasingly lower
overall fixed line penetration in Australia, there is less certainty of earning
a return over the longer term for the installation of fibre in new developments
without some form of subsidy or other form of upfront capital contribution.
Hence, the position articulated in the GFOA Document. However, the solution is
not to reallocate USO funding which has generally been provided to Telstra for
another set of high cost customers, not for the purpose of supplying new
developments with fibre infrastructure. The Government’s approach has been to
provide for NBN Co to be the provider of last resort and to subsume the cost of
these developments in the overall build of the NBN.[18]
3.18
The Department of Broadband, Communications and the Digital Economy
(DBCDE) stated that it expected that NBN Co would adopt a similar approach to
USO by recovering the cost of infrastructure over time through its general
service charges. The DBCDE stated:
USO funding is directed at
supporting telephony services in high-cost, typically rural and remote, areas.
Moreover, the USO is directed at supporting telephony services to individual
premises, not providing broadband infrastructure in developments. The
department understands that Telstra has generally recovered the cost of
infrastructure in new developments over time through its general charges. In
this context, it is envisaged NBN Co will adopt a similar approach.[19]
Pricing of backhaul
3.19
The Government’s Fibre in New Developments policy[20]
in line with the 20 June 2010 policy announcement provides that NBN Co
will be responsible ‘for the installation of fibre infrastructure in the
development including backhaul to a point of interconnect.’[21]
3.20
Opticomm stated that the high cost of providing backhaul is having a
negative impact on competition in the Greenfield fibre provider market. OptiComm
commented that there is inequity in the costs of backhaul borne by developers
versus the ability of NBN Co to subsume these costs in the short term. In
practice, NBN Co can provide backhaul at little or no cost to its long term
operations as in some cases it may use existing infrastructure, while fibre
providers must contract this in from a third party, which is most likely
located at a further distance than that used by NBN Co. Opticomm explained:
...back haul is currently the most inequitable component
facing [Fibre-to-the-Premises] FTTP operators and this legislation does not
appear to address this. NBN is proposing to provide for 'free' the back haul to
Greenfield estates, most likely in the future from nearby Telstra
infrastructure, however alternative FTTP operators must currently seek a third
party provider of back haul, who is most likely much further away than a
Telstra facility and incur a much increased cost - this is not much different
than the problem that the Governments Black spot program for non competitive
trunk backhaul has addressed. We suggest that Greenfield back haul be treated
along the same lines, perhaps funding the installation of back haul, or having
NBN provide back haul to the boundary of a Greenfield estate and having
operational costs a declared service to ensure cost neutrality or a soft loans
scheme to finance the back haul build could be established to provide a more
level playing field.[22]
3.21
Using the pricing of backhaul as an incentive to stimulate competition
in the Greenfields fibre provider market was suggested. In particular, OptiComm
recommended that backhaul be made more accessible and affordable for fibre
providers ‘by requesting the ACCC to declare backhaul services at affordable
rates.’ In addition, OptiComm suggested these rates could be determined by the
Communications Alliance (CA) or similar industry body.[23]
3.22
The DBCDE responded to these concerns and acknowledged that NBN Co (and
before it Telstra) has an obligation to provide service to all areas and that
NBN Co is better able to manage the costs associated with backhaul than smaller
fibre providers. The DBCDE also acknowledged that as a result of the cost and
sourcing of backhaul that this limited the provision of fibre by GFOA members
to locations where backhaul is readily accessible. The DBCDE stated:
The GFOA identifies the cost and sourcing of backhaul and the
provision of accommodation for remote electronic equipment as key costs for its
members in providing fibre solutions in some circumstances. Our observation is
that the cost of backhaul has tended to limit the provision of fibre by GFOA
members to locations where backhaul is readily accessible. By contrast these
are costs that a large national provider like NBN Co (and previously Telstra),
with an obligation to service all areas, can more readily manage.
The GFOA’s claim that the Regional Backbone Blackspots
Program provides a model for the provision of backhaul to new developments is
not correct. This Program has focussed on providing trunk backhaul on five
strategic inter-regional backbone routes. It does not relate to the provision
of relatively discrete backhaul infrastructure
in cities and towns to the thousands of developments that take place annually.[24]
Services for new developments of less than 100 premises
3.23
TransACT stated that the Minister’s statement as it applies to
developments of less than 100 premises enables Telstra to determine the type of
infrastructure solution that it will deploy. TransACT puts the view that this
will create a digital divide between developments of less than and more than
100 premises and is uncompetitive. TransACT stated:
This process has the potential to create a ‘digital divide’
between developments with less than 100 premises and those with more than 100
premises, both during and after the roll out of the NBN. It also creates an
anti-competitive and unlevel playing field for other infrastructure and service
providers. It seems that Telstra could determine unilaterally that it will
service a development with a fibre-to-the-node (FTTN) or fibre-to-the-building
(FTTB) solution, or even a mobile voice and broadband solution, which would
prevent other service providers from accessing those networks given they are
not regulated. This would further entrench Telstra as the monopoly provider in
these markets, while also giving it first mover advantage to acquire the end-users
as Telstra Retail customers, pending migration to NBN Co’s fibre network.[25]
3.24
TransACT suggested the Bill should be amended to:
... include provisions that ensure these developments are
serviced by copper from the local telephone exchange wherever reasonably
possible. This would ensure the ULLS[26] is available to other service providers during the transitional period, prior to the NBN Co fibre deployment.[27]
3.25
In addition, TransACT stated that there could be a situation created
where another provider could ‘provide a solution other than a Telstra copper
solution, it may be inhibited from doing so’ and disadvantage the end user from
receiving a better service. TransACT suggested that the Bill and Access Bill should
be amended by including provisions that create additional exemptions.[28]
3.26
The Australian Communications Consumer Action Network (ACCAN) raised
concerns about the wireless services for developments with 100 or less
premises.[29]
3.27
In particular, ACCAN commented that it had been contacted by consumers
who had been provided with interim ‘wireless phones [by Telstra] in
circumstances where copper infrastructure will take a long time to be
provided.’ Telstra has advised these consumers that they will have to wait for
the NBN rollout to reach them before they can have fixed-line internet service.
The ACCAN stated:
Given the nine-year timetable for the NBN rollout, ACCAN is
concerned that this group of people may be waiting a significant period of time
for fibre (potentially several years) and be significantly disadvantaged.[30]
3.28
The ACCAN stated that Telstra informed it that the relevant policy has
not been finalised and implemented and that Telstra already provides ‘interim
wireless phones in circumstances where copper infrastructure will take a long
time to be provided.[31]
3.29
The ACCAN recommended the following to remedy the situation:
- ‘We would urge the
Government to clearly define in what circumstances Telstra is allowed to
provide wireless instead of copper and what is a reasonable period of time for
such an interim measure.
- Premises should not
be left without a fixed line internet service for an unreasonably long period.
- It is reasonable to
require of Telstra that each of the premises in this situation be provided with
a wireless internet service free of charge or at a discounted price. Although
this type of service does not compare well with most [Asymmetric Data
Subscriber Line] ADSL services, it would go some way to compensating people who
find themselves in this interim situation.’[32]
Concluding comments
3.30
The committee understands and acknowledges the views of the Greenfield
fibre providers and industry groups in the context of the rollout of the NBN.
3.31
The committee believes the Government should examine these issues with a
view to ascertaining whether there is any negative impact on competition in the
fibre provider market or service outcomes for the end user in the longer term.
3.32
The majority of comments and views highlighted in Chapter 3 are made in
response to Government policy and are outside the scope of this inquiry. As the
issues raised in regard to the potential negative impact on competition in the
Greenfield fibre provider market are being investigated by the AGCNCO, the
committee will await the AGCNCO report.
3.33
The committee received reports that for developments of 100 premises or
less, there have been instances where Telstra has provided a wireless service
as there is a long wait for copper infrastructure and the NBN is pending. This
level of service is not ideal and should only be an interim solution for
customers.
3.34
The Government’s 15 June 2011 statement on Refined arrangements for
fibre in new developments clarified that pending NBN rollout, Telstra ‘is
responsible as provider of last resort for developments of less than 100 lots
or units approved after 1 January 2011.’ In addition, the refined policy stated,
pending NBN rollout, Telstra will generally provide copper infrastructure. Telstra
can choose to provide fibre ‘and in some limited circumstances ... due to a
short timeframe between construction and fibre rollout’ as an interim solution,
may ‘provide high-quality wireless services’.[33]
Mr
Robert Oakeshott MP
Chair
23 June 2011