Optus: Break NBN Co into baby telcos

By Nate Cochrane on Feb 27, 2011 5:49 PM
Filed under Telco/ISP

And CEO takes a swipe at iiNet No.2 claims.

The company building the national broadband network should be broken into geographic baby NBN Cos and a “Reserve Bank”-style oversight committee empanelled to counter an emerging anticompetitive monopoly, the chief executive officer of Australia’s No.2 telco said today.

Speaking to media and industry at a Gold Coast event, Optus CEO Paul O’Sullivan said there needed to be a greater level of transparency of the deals being struck by the Federal Government, Telstra and NBN Co.

O’Sullivan said the Singtel-owned Optus was worried that $11 billion of taxpayers’ money being pumped into the network would distort market forces and give incumbent Telstra an unfair competitive advantage when transferring customers from today’s networks to the new national fibre grid.

“Of particular concern is that these payments to Telstra will greatly distort the market in its early phases and allow Telstra to buy market share as customers [move to the NBN],” O’Sullivan said.

He called for a public debate on the “new monopoly” being created in NBN Co that would also look at monopolies in content and apps, such as Foxtel and Google.

“Make no mistake, as you’ve seen in early years of mobile and the internet there will be a land grab in the first years of the NBN and it will be stickier for customers because it will carry TV, broadband, customers may well be using a cloud service.”

“It will be a very difficult service to churn [for customers to change their providers].”

Break up NBN Co

To lay a “level playing field”, O’Sullivan said the Government should break up network architect NBN Co and impose strict regulations including the creation of an oversight committee based on the Reserve Bank model funded through the universal service obligation to award tenders every few years.

Accepting that the NBN was a done deal, O’Sullivan said passing the NBN bills before Parliament was “very important because without them we could easily see the creation of another Telstra”.

“If you’ve seen how long it has taken us to unravel the current Telstra, none of us wants the nightmare of going through the same process again – let’s not recreate sins of the past in the way we create the new NBN Co.”

He said that splitting NBN Co by state or geography would create a new layer of innovation in the telecommunications industry and “by periodically putting the operation and management of the NBN out to tender, NBN Co will be subject to the same market forces the commercial sector faces every day”.

The US Government started the breakup of monopoly telco AT&T into “baby Bells” in the mid ‘70s to foster competition but the regional operating companies began agglomerating in 1996 after the US deregulated the sector, indicating such a plan would need constant government intervention for it to work.

Wireless vs Fibre

But O’Sullivan saw eye-to-eye with NBN Co boss Mike Quigley on the role of wireless services such as 4G and long-term evolution as supplements to fibre for consumers and businesses.

O’Sullivan said with technology available now and in the foreseeable future, fibre would deliver superior results for fixed services. He said the appetite for high-speed, always-on connections for applications such as video would outpace wireless.

“The physics of mobile networks is we’ll never be able to carry the same capacity at the same speed simultaneously on wireless in the foreseeable future as on fibre,” he said. “Mobile will have its place but will always be a complementary product rather than a replacement for the fibre network.”

And he likened the spread of broadband to high-speed motorways – as they were laid, road users rushed to use them quickly soaking up excess capacity. In the same way, even wildly optimistic projections for broadband use would quickly be surpassed once users were exposed to them, he said.

Application and content providers also should be regulated, O’Sullivan said, because companies such as Google and Foxtel carried too much weight in the market. The Government should force them to offer their content to all-comers and even auction their website traffic to ensure they didn’t have too much power.

iiNet No.2 claims dismissed

And in an informal session attended by iTnews.com.au after his speech, O’Sullivan took a swipe at iiNet for claiming in its marketing that it was the No.2 ADSL internet service provider.

“[IiNet is] No.2 in DSL not in broadband,” he said. “If you take into account we operate a cable network and not ADSL [primarily] we’re still significantly larger than iiNet.

“We have just under one million households on broadband out of nine million households, [which] is reasonably large.

“We're still No.2 in broadband in Australia and as the NBN rolls out we intend to be the scale challenger.”

The writer attended Kickstart 2011 as a guest of Media Connect. Twitter hashtag #ks11.

Optus CEO Paul O'Sullivan said February 27, 2011, that NBN Co had to be regulated now before it became another monopoly "nightmare" Telstra. photo: Nate Cochrane

12 comments in this discussion

"Tom Brown wrote: And the same applies to some of the comments above, for example "Advocate" what a lot of tripe! You leave open statements so you do not have to justify them. Really, is ..."

By advocate

Tags

paul osullivan, optus ceo, nbn, no2 isp, adsl2 nbn, co national, broadband, network competition monopoly telstra optus iinet churn google foxtel antitrust lte 4g wireless baby

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Comments: 12

sydneyla Feb 28, 2011 7:35 AM	Paul O'Sullivan remains in the same mindset that has seen his company, and others, attempt to assist the weak by pulling down the strong. Instead of accepting the fact, that with the separation of Telstra, his demonising of Telstra cannot be honestly continued and he should accept the new level playing field and adjust his thinking for the provision of fair and honest competition. His call for Telstra to be further restricted in its application of funds to advantage the Australian consumer is a devious attempt to try to continue the old blackmail and threat on Telstra to advantage Telstra opponents. This must be resisted by Government. Mr O'Sullivan is correct in his apprehension that the NBNCo.could attempt to move into the retail market of NBN and in fact could easily dominate this retail section with assistance from Government regulation. All involved in the industry must fear this fact.
deepthroat Feb 28, 2011 9:57 AM	Why not deliver the NBN for free? Tax payers are footing the bill to build it; the government wants us to pay for it twice. The biggest issue, aside from building it,is the telco mind-set that users should have to pay for the pipe. I only pay for my gas and my electricity if I choose to boil water; I dont pay for the idle connection.
harrywwc Feb 28, 2011 12:00 PM	deep... actually, you do. All utilities has an "access fee" associated with them. I've just been examining my electricity bills over the weekend and noted there is a 'service charge' there. Likewise, my gas has a charge (about $50 / quarter from memory). And of course, the phone bill has a monthly "line rental" component. Each year when you pay your car rego, there is a "weight tax" component. Yeah, we all have to pay for the infrastructure, whether we use it "a lot", or only "a little". In theory (not by looking at NSW, though) in theory the 'base fee' is _supposed_ to cover the maintenance and upgrade of the infrastructure.
umbria Feb 28, 2011 12:50 PM	Unravelling the current Telstra was indeed an ordeal. But it was caused by mindlessly selling the taxpayer-built universal copper infrastructure to a private company, against the 2001 advice of the Productivity Commission among many others. The Telstra deal is very reasonable. NBN construction will be faster and its cost was reduced from $43 billion to $36 billion, not counting the time and money saved by the avoided litigation were Telstra to be an enemy of NBNCo. Telstra now benefits from no longer needing to maintain its decrepit copper (a million defects a year) and concentrates on service delivery such as IPTV. In my view, experess mid-November 2010, its share price will quickly double to at least $5 as a result of the NBN deal when approved by shareholders. Incumbent providers of VPNs to government and corporates over their own fibre are free to compete in the new free market, and this will remain a high profit market for them. NBNCo will have no more market power than any other telco. Expect to see the likes of big European telcos also competing freely - are we going to legislate to keep them out, too? Not likely. As to the idea of zero standing charges for the NBN to thank taxpayers. For purely political reasons, the NBN is being built with money borrowed for the purpose, not by reallocating taxpayer funds from other budget items. Its conservative growth forecasts are way below the historical demand trend, guaranteeing a speedy return on the build cost, without ever selling off the farm. Taxpayers and non-taxpayers alike are all getting the benefit of a free, connected NBN box on their premises. This gives them access to whatever services they choose to buy, or health agencies might wish to deliver, into the future.
anonymous Feb 28, 2011 5:12 PM	@umbria, what you said is just clear common sense. It's surprising that some other people still don't seem to get it. Perhaps they are too busy playing their own corporate, political and/or shareholder games.
deepthroat Mar 1, 2011 9:11 AM	@harry - point taken however we didn't stump up 42 billion to build the network.
Francis Mar 1, 2011 11:54 AM	This is just the opposition or potential opposition companies playing mind games and trying to shoe horn a network for themselves in the new telecommunications regime in Australia. The original PMG structure perhaps needed an overhaul but on the service side of the business they were second to none. The Physical side of the business (Poles wires and exchanges) should never have been sold off. Neither should Optus et-al have been allowed to come in and cherry pick the most profitable parts of the business leaving PMG/Telstra holding the unprofitable parts of the business to their economic detriment. Not only that but also to the detriment of those people who live in Regional Australia who are only serviced by PMG/Telstra. It is largely pointless trying to compare Australia with most other countries as we have a large land mass and a relatively small population which changes the dynamics of both the economic as well as service side of the business competition is pointless as you loose the benefits of scale and in doing so only duplicate an existing network which results in several underutilised networks and in doing so ultimately raising costs to the consumer. While I am in favour of the NBN in general terms, but have problems with the lack of transparency and its lack of security by erecting overhead cables, all I can say to Optus and the other cherry pickers who have made a profit at the expense of the of the average Australian Communications user. If it is too hot in the kitchen then get out and stop whingeing.
advocate Mar 1, 2011 12:43 PM	umbria wrote: But it was caused by mindlessly selling the taxpayer-built universal copper infrastructure to a private company, against the 2001 advice of the Productivity Commission among many others. What 2001 advice from the Productivity Commission are you referring to? The Telstra deal is very reasonable. Well the Telstra shreholders who have yet to vote on it might not agree. NBN construction will be faster Err what ? why? and its cost was reduced from $43 billion to $36 billion, Oh I see the money paid to Telstra is monoply money (excuse the pun) is it and cannot be counted in the NBN cost why? not counting the time and money saved by the avoided litigation were Telstra to be an enemy of NBNCo. Your comments become even more bizarre every day! In my view, experess mid-November 2010, its share price will quickly double to at least $5 as a result of the NBN deal when approved by shareholders. lol a Umbria 'prediction', so where did the $5 figure come from, have you been flying kites again? Incumbent providers of VPNs to government and corporates over their own fibre are free to compete in the new free market, and this will remain a high profit market for them. NBNCo will have no more market power than any other telco. Expect to see the likes of big European telcos also competing freely - are we going to legislate to keep them out, too? Not likely. I put this through the Google translator because I thought it was in another language, it still doesn't make any sense. Its conservative growth forecasts are way below the historical demand trend, guaranteeing a speedy return on the build cost, without ever selling off the farm. What historical demand trend, the only increasing demand trend I can see is wireless BB, the rest of your post is a total fantasy. Taxpayers and non-taxpayers alike are all getting the benefit of a free, connected NBN box on their premises. Except its NOT free the taxpayer is paying for it even if they don't actually need it . This gives them access to whatever services they choose to buy, or health agencies might wish to deliver, into the future. You mean like you can do with ADSL, HFC cable and wireless BB today?
developerchris Mar 4, 2011 10:45 AM	@advocate lol! thanks.
Tom Brown Mar 16, 2011 1:09 PM	Is O'Sullivan playing politics? Should he attain a clear, intelligent, open approach, or a self serving one? I suppose he has his orders and I should not appear so judgemental. To make the US example of breaking up the Telco monopolies (I guess he does not include Optus/Singtel in a breakup, is it just Telstra and the NBN) is a misrepresentation. The US experience was hugely counterproductive and now the growth of big Telco's is again being allowed in the US and Mr O'Sullivan I believe knows this. For persons to make statements knowing and relying on the readers unawareness of the detail is misrepresentation Mr O'Sullivan! And the same applies to some of the comments above, for example "Advocate" what a lot of tripe! You leave open statements so you do not have to justify them. You say "What 2001 advice from the Productivity Commission are you referring to? "well if it was not there why not just say so, if you do not know, why make the statement, I suppose as Mr Abbott can rely on ignorance of the truth as justification for accusations and assumptions you feel you can follow suit.
anonymous Mar 16, 2011 5:37 PM	@Tom, good questions, but we may be whistling in the wind waiting for any (sensible) answers. So perhaps we have to fall back on the basic premise underlying all these discussions: Don't feed the trolls. It only encourages them!
advocate Mar 17, 2011 9:02 AM	Tom Brown wrote: And the same applies to some of the comments above, for example "Advocate" what a lot of tripe! You leave open statements so you do not have to justify them. Really, is that why you didn't answer them? - I know it's easy to go for the lazy option label them 'tripe' then leave it at that, some rational argument would be nice. You say "What 2001 advice from the Productivity Commission are you referring to? "well if it was not there why not just say so, First of all the question was not asked of you, it was of Umbria who made the statement in the first place, the fact he has not come back with any response says it all, but then he usually doesn't.