NBN can't shake layer three concerns

NBN Co's decision to stay at the layer two wholesale market and not push into layer three was  partially an issue of Government funding, according to Australian Telecommunications User Group (ATUG) chair Rosemary Sinclair.

Debate on whether or not NBN Co should stick to layer two continued unabated at the Senate Select Committee hearings today despite NBN Co saying in February that it wanted to leave layer three to retail service providers.

Two industry bodies appearing before the Committee today expressed separate concerns over the what the success of that prospect might be.

Sinclair said she understood why NBN Co wanted to stay at layer two wholesale but was concerned about the barriers to entry for new players - not existing telcos - in such a market structure.

"NBN Company has a significant objective as to why it wants to stay at layer two and that's because the cost of being at layer two wholesale operator is less than it would be for them to be a layer three wholesale operator," she said.

"Their position is driven by a careful and rigorous assessment of having to get to 90 percent of premises within eight years with this amount of money. And they're saying, 'Well we give ourselves the best chance of doing that and achieving Government objectives for high speed broadband if we're layer two wholesale'.

"My question comes down to whether the people who buy layer two wholesale will themselves offer layer three wholesale services when they have a foot in the retail camp."

Sinclair said she'd been told by NBN Co chief Mike Quigley and telco chiefs not to worry because the layer three wholesale market would emerge, based on competitive market forces.

But she remained concerned based on past experience in the telco sector. If a layer three wholesale market did not emerge, new players - particularly non-telcos such as healthcare operators that wanted to leverage the NBN - would be forced to invest in their own telecommunications infrastructure.

"I'm not sure what value add there is [in that]," Sinclair said.

"I want to make sure that those people can get a higher level wholesale service which doesnt require them to invest in being a telco at any level of the stack, but allows them to deliver their services."

It was suggested that the Communications Minister be given the power to take action if existing telcos don't come to the table.

"The attraction for me with an incentive like 'leave this power with the Minister' is that it's a signal to the players that if this set of services doesn't emerge properly from the market then action will be taken," Sinclair said.

"Hopefully it would be like the Minister's reserve pricing power [under the Trade Practices Act]. It would never need to be used but, as we have said about that power, having it there is a very good safety net for all of us.

"But the best position is if it's not used and if the market says 'OK there's a need for these services for these sorts of customers and we're going to offer them those services."

Earlier, Internet Society of Australia (ISOC) president Tony Hill expressed concerns to the Committee that leaving layer three to the private sector could see regional and rural users continue to miss out when it came to a choice of retail services.

"Our experience of competition policy is low density populations have been served by only one provider under the universal services obligation," Hill said.

"If only layer two is reaching those areas then those people won't have the freedom of choice at layer three."

By contrast, an NBN Co with some sort of layer three offering would ensure those services were made available "across the whole breadth of the NBN and not depend on service providers installing layer three equipment at the far reaches of the network", Hill said.