Telstra opens Velocity estates to third parties

Telstra has cut a deal with the Federal Government that will see 118 of its Velocity fibre-to-the-premise communities opened to retail competition for the first time.

The deal, brokered with the Department of Broadband, Communications and the Digital Economy (DBCDE), exempts the estates and South Brisbane fibre deployment from anti-"cherry picking" rules brought in last year to safeguard NBN Co against unfair price competition.

The rules would have prevented Telstra from rolling out more fibre infrastructure in the estates.

In return for the exemption, due to take effect in April, Telstra has agreed to allow retail competitors into "specified" estates for the first time.

Though the department has provided information on the estates exempted, a Telstra spokeswoman declined to clarify which Velocity estates remained closed to retail competition.

Previously, all residents in Velocity housing estates were limited to buying retail internet products from Telstra's retail arm, BigPond.

Telstra has traditionally been reluctant to open its greenfields fibre deployments on a wholesale basis to third parties.

It has run wholesale, open access trials in Point Cook and South Brisbane but plans for wider application of the arrangements were never disclosed.

The anti-"cherry-picking" legislation appears to have forced Telstra's hand.

The legislation aims to prevent "carriers other than NBN Co" from cherry-picking typically low-cost, high-density areas to build or upgrade high-speed fixed networks before the NBN arrives.

Such moves could undermine NBN Co's business model, which relies on cross-subsidies to finance the rollout of infrastructure to rural and regional Australia.

Being granted an exemption means that these rules no longer apply to 118 Velocity estates and to Telstra's South Brisbane exchange migration project.

This will allow Telstra to continue expanding South Brisbane and existing new developments beyond a one-kilometre limit set out in the laws.

It is the first exemption of its kind granted by the communications minister, Senator Stephen Conroy, since the legislation was passed last March.

Telstra had argued in a September application to the DBCDE that failure to gain the exemptions would "result in it incurring significant unforeseen costs".

iiNet-owned TransACT requested a similar exemption from the minister in June last year in an attempt to continue a planned deployment in Canberra greenfields.

A spokesman for Senator Conroy confirmed TransACT's application is yet to be decided.

Price changes ahead?

Telstra already offers wholesale access to South Brisbane and to part of Point Cook near Melbourne under two highly-publicised trials of open access arrangements.

However, retailers on the networks have decried current access pricing as abnormally high compared with services on the NBN.

Where NBN Co offers a base 12 Mbps/1 Mbps product for $24 a month to all access seekers, Telstra has individually negotiated wholesale pricing starting at between $27 and $30 a month for an 8 Mbps product with a lesser 384 Kbps upload speed limit.

Technological differences between Telstra's fibre product and the NBN - such as lack of multicast capability in Velocity estates - has also been seen by third parties and some retail customers as a shortcoming of the incumbent's network.

However, with the exemption forcing regulation of Telstra's fibre access product and the requirement to publish prices, some believe Telstra could be forced to align its current wholesale prices with those offered on the NBN.

One source close to the issue told iTnews there had been some "movement" on the issue since Telstra first solidified wholesale pricing for the area.

Despite potential changes in pricing, telco executives said the exemption could prevent Telstra from providing truly "open access" to competing retailers and would likely require regulation at some point.

"Telstra has previously shown itself to be unwilling to act with equivalence unless services are regulated," TPG said in a recent submission [pdf] calling for a declared wholesale DSL price.

The ACCC could force a regulated wholesale price, but its head of communications Michael Cosgrave said the watchdog would wait for the market to decide whether to change wholesale pricing, rather than declare a fixed price.

"These measures ensure that the ACCC can maintain oversight over commercial negotiations for the [Fibre Access Broadband wholesale product offered in South Brisbane]," he told iTnews.

"Other regulatory measures, including declaration should that prove necessary, are not precluded by the Ministerial determination."

A spokeswoman for Telstra Wholesale said the company was "working with its customers since the announcement of the upgrade in South Brisbane" and had entered into deals with 20 wholesale customers.

She refused to comment on potential changes to those deals.

'Transitional' arrangements

A spokesman for Senator Conroy confirmed the exemptions were meant as transitional arrangements as the NBN is rolled out.

They would be only be enforced under a structural separation undertaking, a final hurdle to Telstra's agreement with NBN Co that is expected to be closed by next month.

However, the exemptions could be short-lived in some areas. As part of its agreement with NBN Co, Telstra plans to sell fibre assets in South Brisbane to NBN Co as early as 2013, potentially limiting the exemptions arranged by Senator Conroy to under 12 months' duration.

An NBN Co spokeswoman declined to comment on the state of the negotiations with Telstra.