Ovum queries layer 3 outlook under NBN model

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Ovum queries layer 3 outlook under NBN model

Seeks network layer scope creep assurances.

Australia’s internet industry could be headed for an oligopolistic layer 3 market caused by the National Broadband Network, raising issues for the communications regulator, according to Ovum.

David Kennedy, research director at Ovum, told delegates of the Telecommunications Regulatory Reform Forum in Sydney that apart from comments by NBN Co chief Mike Quigley that NBN Co would operate a layer 2-only network “there’s nothing rock solid set in policy around that".

“There’s the whole question of mission creep over time where they [NBN Co might] start moving up to layer 3,” Kennedy said.

Kennedy cited Singapore’s Next Generation Network as an example of a wholesale access provider that operated across OSI network layers 1 to 3.

He said the NGN company’s layer 3 operation existed partly to encourage more players to enter a market dominated by SingTel and Starhub.

“We’re likely to end up with quite a different industry structure emerge in this country,” Kennedy said.

“We’re going to have quite a concentrated market at layer 3 which will raise regulatory questions. Layer 3 infrastructure has to be built by someone - Telstra and Optus Wholesale are almost guaranteed - but beyond that it’s quite tricky to see who would be prepared to build a layer 3 network.

“It’s very much going to be an oligopoly.”

Kennedy forecast that regardless of whether the regulator took a light or heavy-handed approach to policing the layer 3 operators, “what you’re likely to see is innovative pricing”.

He also predicted consolidation at the retail level and that smaller operators would find it “tougher to get deals on layer 3 services.”

Kennedy also outlined what he saw would be the three main business groups in the internet industry of the future - lean operators, smart enablers and smart players.

Lean operators were essentially wholesale transport businesses. Kennedy said he expected “to see a lot of consolidation in the sector.”

He said smart enablers would build platforms on which third-party application and content services could operate.

The third group - smart players - would be dominated by non-telco players that provided “branded devices, free and premium content” and bundled telco services as a “low margin adjunct to their [content] service.”

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