NextDC warns global transit could beat NBN prices

NextDC founder Bevan Slattery has warned it might eventually be cheaper to haul internet traffic from Iraq to Sydney than across domestic routes in the same city if NBN Co is handed a legislated monopoly for fibre.

Slattery added his voice to a throng of telco luminaries calling for drastic changes to the NBN Access Bill currently before parliament.

The Bill is meant to prevent competitors from 'cherry-picking' certain areas for fibre expansion before NBN Co's rollout arrives.

Telcos and ISPs say the Bill's wording is ambiguous and effectively prevents them performing even the smallest upgrades to existing fibre networks.

"Upon reading, the Bill doesn't appear to be about cherry-picking," Slattery said in a senate submission [pdf].

"It appears to be about completely removing competition altogether."

Slattery used his experience as the founder of Pipe Networks to illustrate the impact competition could have in a market dominated by one or two players.

He said that before Pipe's arrival, a dedicated Gigabit Ethernet connection on an international cable route out of Australia cost $300,000 a month – around $300 per Mbps per month.

In the three-and-a-half years it took to complete Pipe's PPC-1 cable between Sydney and Guam, competitors upgraded their own links, launched new capabilities and significantly dropped their prices to combat the newly-introduced competition.

"Transit pricing for that 1 Gbps service has dropped from $300,000 a month in 2006 to just $40,000 a month today," Slattery noted.

"This price has dropped almost 50 percent in just 12 months and 85 percent in three years with competition".

Slattery warned that if competition was outlawed in an NBN world, there would be "little incentive for NBN Co to innovate and become more efficient in a market where there is no competition".

"In fact, with the collapsing price of transit in Australia through competition, it is quite possible that within a few years it will be cheaper to get bandwidth from Iraq to Sydney than from Sydney to Sydney ([because] NBN Co is looking to charge $20 /Mbps for house to PoI [point of interconnect] bandwidth aggregation from Premises to the PoI)," Slattery said.

In other words, it could cost more to transfer internet traffic from an NBN-connected house to the point-of-interconnection to an ISP network in the same city than to push that traffic more than halfway across the globe.

Slattery said there was no government or market worldwide that was contemplating "removing competition as part of the advancement of broadband in their country – and for good reason".

Slattery's former company, Pipe Networks, sought an exemption from the cherry-picking rules in its own senate submission, claiming its business is a "fundamentally different beast from networks such as the NBN."

Slattery sold Pipe to ISP TPG last year before setting up NextDC, a data centre operator.

ISPs Internode and HaleNET also sought various levels of amendments to the controversial bill.