NBN Co has been distributing its product and price list noting that the prices still have to be accepted by the competition watchdog. David Havyatt outlines the challenges NBN Co will face in getting the prices accepted.
It’s a better monopoly – in that it will be structurally separated and won’t have a retail division in favour of which it might discriminate.
But it is nonetheless an organisation whose pricing decisions are unconstrained by market competition. That’s where the Australian Competition and Consumer Commission steps in.
Speaking at the Communications Alliance’s recent Broadband and Beyond conference, NBN Co’s Mike Quigley and the ACCC’s Michael Cosgrove provided some detail about the first stumbling block: Points of Interconnect (POIs) between NBN Co’s access network and the networks of ISPs.
There are reasons to believe the future path will be quite rocky.
The POI decision
NBN Co had proposed a model that had only 14 PoIs around Australia. Quigley favoured this model as it was administratively simple and facilitated uniform national pricing.
The locations of these PoIs will ultimately be part of the NBN Co “special access undertaking” that the ACCC will need to approve to form the basis of prices.
The ACCC is bound by section 152CBD of the Competition and Consumer Act 2010 on what undertakings it can accept. The Commission must not accept an undertaking unless it is satisfied that it will “promote the long-term interests of end-users”. This condition, the LTIE test, has applied from 1997. Nothing in this regard changes with the NBN.
The competition watchdog formed the view that the option of a “semi-distributed approach” to PoI location would best promote the LTIE. This required something more like 120 PoIs located in places where there is already competitive backhaul.
NBN Co, as a consequence, has had the need to redesign the network.
NBN Co claimed that the cost of extra PoIs will offset the savings they make in not otherwise providing the backhaul.
NBN Co is now finalising the list of PoIs – which appears to have caused delays in roll-outs to second release sites.
NBN Co is proposing two main parts to the wholesale charge: a fee for the access circuit and a fee for a “Connectivity Virtual Circuit” or CVC. The CVC is an aggregator link from a connectivity serving area to a PoI. Under NBN Co’s original PoI model, this was potentially covering large distances and hence a circuit with some service provider-defined contention was required.
But the move to more PoIs raises the question of whether the “two-part tariff” makes sense and whether instead NBN Co should supply committed bandwidth all the way to the PoI. Macquarie Telecom’s Matt Healy told the conference that his company would object to the proposed tariff structure.
NBN Co CEO Mike Quigley told the conference that achieving the larger number of PoIs would be easiest if the company could locate them in existing Telstra exchange buildings.
This raises another access issue - whether Telstra might be in a position to frustrate an access seeker getting connected at a PoI – bringing us full circle back to some of the problems its competitor’s complain of today.
Other Access Pricing Issues
On top of the PoI location and CVC charge issues, NBN Co will still have to satisfy the ACCC that it is only charging service providers the “efficient” cost.
NBN Co is building a GPON (Gigabit Passive Optical Network) which provides an efficient build by using passive splitting technology. But there are concerns being raised in the industry that NBN Co may be over-provisioning fibre.
Firstly, NBN Co is limiting the splitting to 32 whereas the technology can technically support 128. Secondly, NBN Co is going to provision three fibres for each premise. The latter allows for things like future subdivision or second ONTs.
NBN Co is ultimately building almost as much fibre as what is required for a point-to-point (or home-run) network as opposed to the point-to-multipoint network being built. The company intends to build a lot more fibre now, albeit with a view to future requirements.
This could raise issues when the competition watchdog is determining whether NBN Co’s pricing is based on “efficient costs”. The ACCC was confronted with similar issues in determining the access prices to Telstra’s copper network. In that case, it was a hypothetical rather than real build, but the ACCC always argued that the ratio of copper pairs to premises needed to be lower than Telstra wanted. That argument hinged on whether current customers should pay for future capacity.
As noted last week, the ACCC may also have to consider whether NBN Co paid too much for wireless spectrum when addressing the issue of “efficient” costs.
And finally, NBN Co’s vendor selection processes may also be open to question.
NBN Co has not been prepared to disclose who it has invited to tender, and in that vacuum rumours have spread in the industry about what suppliers that have not been invited to tender.
Without naming names – the scuttlebutt is that only two vendors (that happen to be based in Europe) have been invited to tender for the wireless component.
The competition watchdog might take note of others being excluded on dubious security grounds or a lack of a managed services track record in Australia.
The question is whether excluding any major vendor will wind up costing more. The ACCC’s task will be to provide the scrutiny of NBN Co procurement the company seems to otherwise avoid.
NBN Co won’t be submitting its special access undertaking until the Bill setting the new access arrangements is passed by the Parliament.
Already it looks like the ACCC will have a plenty to look at when it comes to assessing those undertakings: starting with whether the two-part tariff is reasonable, whether there is too much fibre in the roll-out, whether the price-tag for wireless spectrum was too steep and whether NBN Co’s approach to procurement will gain the best value for money.
Are there other parts of the NBN Co pricing model that might trouble the ACCC? Share them below.