Telstra fears vertical integration of NBN Co

Demands closure of "loopholes".

Telstra has raised fears that NBN Co could exploit "loopholes" in the NBN Companies Bill currently before parliament in order to become a more vertically-integrated telco.

The incumbent put forward a series of amendments it believed necessary to prevent vertical integration and other forms of "scope creep" by the Government-funded network.

"Present provisions are easily circumvented and would enable NBN Co to vertically integrate into retail corporate and government markets with little difficulty," Telstra said in a senate committee submission [pdf].

"The NBN Companies Bill should therefore provide a bright line which enshrines the Government's key policy of a 'wholesale only' NBN."

Telstra sought to close several "loopholes" it believed could be exploited by NBN Co in the future.

One alleged loophole was that the recipient of NBN services only had to be a "carrier" or "carriage services provider".

Almost any retail customer could apply for a carrier license. The cost was minimal and there was no requirement to on-sell the wholesale services to someone else, Telstra said.

Telstra was concerned that large companies could escape the prices it charged for Layer 3 services by getting a carrier license and buying a direct Layer 2 feed from NBN Co.

Similarly Telstra claimed the loophole could allow a supermarket with a mobile service, for example, to connect to NBN Co on a wholesale level but "acquire all of its fixed services from NBN Co directly, even though they may be entirely unrelated to functions as a mobile reseller."

To prevent customers exploiting the loophole, Telstra called for an amendment that specified that NBN Co's wholesale services had to be onsold.

Telstra called on the Government to scrap any exemptions that might allow NBN Co to provide services directly to anyone other than a party that would onsell the service to someone else.

It also demanded that rules allowing NBN Co to "acquire businesses in order to acquire infrastructure it needs for the NBN" be tightened to prevent NBN Co from holding on to other parts of the asset – for example, a retail portion.

"The definition of 'NBN Corporation' would allow NBN Co to hold a controlling interest in a retail service provider for up to 12 months," Telstra claimed.

"In addition, there is a loophole in the definition that would effectively allow NBN Co to extend the period beyond 12 months by simply transferring the retail business into new company before the period expires."

And the telco proposed lengthy amendments that effectively enshrined in law that NBN Co could not go above Layer 2, except in very limited circumstances.