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  • Telecommunications - Written by on Wednesday, October 12, 2011 9:39 - 23 Comments

    NBN Co must own Telstra’s copper, says Hackett

    news The outspoken managing director of national broadband provider Internode has called for ownership of Telstra’s copper to be transferred to NBN Co as part of its deal with the telco, arguing future Federal Governments may want to use the infrastructure to build hybrid fibre to the node networks.

    Under the terms of NBN Co’s multi-billion deal with Telstra, which is shortly expected to be approved by Telstra shareholders at the company’s AGM, Telstra will progressively shut down its copper network over the next decade as the NBN is rolled out, and transfer its customers onto the replacement fibre network as it is built.

    However, there is no guarantee that the Labor-backed NBN policy would go ahead under a Coalition Government, with Shadow Communications Minister Malcolm Turnbull having outlined the bones of an alternative policy which does not include the high levels of spending the Coalition has claimed the NBN entails. Current polling suggests the Coalition will easy win power at the next Federal Election in several years.

    A number of major carriers overseas are currently deploying fibre to the node technology, which sees fibre laid from telephone exchanges to streetside cabinets rather than all the way to customers’ premises) as under the NBN. The extra distance is made up with the existing copper, with new VDSL technologies developed for this kind of network rollout offering fibre to the home-like speeds — although network latency is expected to remain slower than on pure fibre networks.

    However, in a speech to the CommsDay Congress in Melbourne yesterday, according to speaking notes seen by Delimiter, Internode MD and CTO Simon Hackett said under the current arrangement, Telstra could not be compelled to cut its copper network up — which he said was the issue which had really sunk Labor’s previous failed FTTN NBN strategy.

    “Telstra will not allow the copper to be cut unless they do the cutting on their own terms,” he said.

    The Internode chief pointed out that an independent consultant’s report into Telstra’s NBN deal had found it benefited Telstra to the value of $4.7 billion to cooperate with the NBN policy. This, Hackett said, meant NBN Co was overpaying Telstra by $4.7 billion to get the NBN built. If he had his way, the executive said, he would demand that amount be turned into NBN Co “owning the copper that it is paying for”.

    This would “protect the long-term interests of end users by allowing for a hybrid of FTTH and FTTN as a choice for any future Federal Government,” Hackett wrote.

    In the meantime
    The long-term interest of end users is a technical term in the context of Australia’s telecommunications industry. It refers to a decision-making process whereby the Australian Competition and Consumer Commission (ACCC) decides whether to allow or deny a certain approach in the market.

    The regulator is currently examining the structural separation undertaking which Telstra recently filed with it, in order to decide whether it is appropriate for guiding the next decade in Australia’s telco sector, before the NBN is fully built. The ACCC has asked Telstra to make several key changes to the plan, with the regulator being particularly concerned about the telco’s commitment to providing the same services to its wholesale customers as it does its own retail arm.

    Hackett said the SSU didn’t separate Telstra, didn’t protect competition, and enshrined “massive loopholes” in how the telco dealt with others. However, he said that following the shareholder vote on Telstra’s NBN deal, the telco’s board would have authorisation to proceed only with the SSU in its current form, stating that a SSU substantially changed in consultation with the ACCC would require “a new voting cycle”. This, he said, added up to blackmail — to force the ACCC into considering the current SSU’s merits against the long-term interests of users.

    If Hackett had his way, he said, he would have the regulator set a bundle of wholesale copper line rental and ADSL2+ pricing for no higher than $33 a month — the same average price which NBN Co will charge per customer bundle on its fibre network.

    In addition, Hackett reiterated his opposition to the ACCC’s decision to set the number of points of interconnect for other carriers to connect with the NBN at 121. The executive objects to the 121 PoI model for a number of reasons — ranging from the fact that it will raise overhead costs substantially, will be less reliable and will leave Telstra at an advantage compared with other ISPs, as it will own fibre to all PoI locations and owns the buildings (telephone exchanges) for most PoI sites).

    These three issues (ownership of the copper network, Telstra’s SSU and the PoI debate) were the three “elephants in the room” for the NBN, Hackett said.

    “The forecast for the NBN? Cloudy with a chance of hardball,” he added, describing the network as “the Nearly Begun Network”.

    Image credit: Internode

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    1. Posted 12/10/2011 at 10:41 am | Permalink |

      Hmm…interesting concept. Will have to churn this one over in my head.

      EDIT: *returning after churn*

      This was probably considered – as there are definite logistical/cost advantages during the fibre rollout if it’s all under one roof – but Telstra probably put their hand up for a lot of coin to sell it all up front.

      It was probably felt that the cost savings to have NBN own it and drive efficiencies during the rollout, were not enough to offset the cost to buy it.

      But Simon is right – there would be advantages.

      • PeterA
        Posted 12/10/2011 at 2:39 pm | Permalink |

        No advantages for NBNCo, only advantages for Australians in a Liberal 2013.

        The government aren’t about to go fight with Telstra over the copper in the ground all for a hedged bet that is hedging against themselves.

        Sadly, I don’t see any government in this absurdly adversarial climate ever hedging against a win at the next election. DOUBLY so when the hedge isn’t for *their* gain, but ultimately for the gain of the opposition when they take power.

    2. toshP300
      Posted 12/10/2011 at 1:26 pm | Permalink |

      *The Internode chief pointed out that an independent consultant’s report into Telstra’s NBN deal had found it benefited Telstra to the value of $4.7 billion to cooperate with the NBN policy. This, Hackett said, meant NBN Co was overpaying Telstra by $4.7 billion to get the NBN built. If he had his way, the executive said, he would demand that amount be turned into NBN Co “owning the copper that it is paying for”.*

      that’s complete rubbish.

      if anyone bothered reading the Grant Samuel report in any detail, they would realise that the “incremental gains from co-operation” (expressed in terms of positive NPV values) are framed relative to an assumed and completely fictional baseline (compete) scenario where Telstra and NBNco each have 50% market share.

      put simply, the authors of the GS report are saying Telstra will be $XXbln less worse off by co-operating relative to the assumed default outcome of only 50% market share under head-on competition.

      Telstra does not “gain” at all from the transaction — rather, the deal, at best, preserves the “status quo” for Telstra from a financial/cashflow perspective and allows it to continue to meet its dividend policy. the significance of these NPV calculations are for “relative comparison” (i.e choosing between compete or cooperate) — the absolute level of the figures are completely arbitrary because the default baseline scenario (50% market share) is also arbitrary. (if i recall correctly, the report itself mentions this.)

      to try to twist the report into saying that NBNco is “overpaying” is completely misleading.

      Internode can see the writing on the wall for Labor’s NBN. Telstra still has strategic control of the copper infrastructure and that puts them in the box seat in determining the future broadband landscape. not suprisingly, Telstra’s competitors are still sweating over this.

      notice how Malcolm’s gone from talking about “voluntary structural separation” to even mentioning the possibility of (a stricter form of) “operational separation” instead in his last speech in Paris. the tide is oh so slowly turning back in Telstra’s favour.

      • Posted 12/10/2011 at 5:01 pm | Permalink |

        I don’t disagree with this comment.

      • Mathew
        Posted 12/10/2011 at 5:46 pm | Permalink |

        Considering the cost of copper maintenance that Telstra present to the ACCC every time there is a discussion over pricing, this would suggest that the copper network is costing more to maintain than it is worth ;-).

      • Anonymous
        Posted 13/10/2011 at 2:33 pm | Permalink |

        ill agree with tosh here, Simon is making noise to try and look after his own back pocket, and misrepresenting the truth quite happily.

    3. Posted 12/10/2011 at 2:11 pm | Permalink |

      How much easier would this be if we hadn’t sold Telstra in the first place, or if we sold off the retail arm only?

    4. WTW
      Posted 12/10/2011 at 2:12 pm | Permalink |

      The government are building FTTH – they dont want the copper, they just want the customers to migrate to FTTH.

      The Libs want FTTN, but FTTN is more expensive:

      Telstra Wholesale ADSL
      AGVC ($/mbps) $65
      Port – Zone 1 $31
      Port – Zone 2/3 $38

      Wholesale NBNCo
      CVC ($/mbps) $20
      12M/1M $24
      25M/5M $27

      Telstras port costs are higher than NBN
      Telstras AGVC is 3 times higher than NBN CVC

      • toshP300
        Posted 12/10/2011 at 2:20 pm | Permalink |

        you’re comparing “market prices” with “bureaucratic prices”.

        those NBNco pricing parameters are unsustainable in the long term and have zero reference to real costs incurred. even their SAU explicitly admits that NBNco will be under-recovering costs during the early years. it’s a simple hook to get consumers to transfer to fibre before shutting down all other fixed-line alternatives.

        also, those relatively expensive wholesale ADSL lines are effectively subsidising all those millions of cheap $16 ULL/$2.50 LSS lines which fatten the profit margins of Telstra’s parasitic “competitors”.

        • Pepe
          Posted 12/10/2011 at 2:30 pm | Permalink |

          parasitic competitors?

          someone has obviously been in the hot tub time machine again and slipped back to nwat cicra 2005.

      • Mathew
        Posted 12/10/2011 at 5:18 pm | Permalink |

        The NBNCo Corporate Plan – http://www.nbnco.com.au/wps/wcm/connect/main/site-base/main-areas/publications-and-announcements/latest-announcements/nbn-co-corporate-plan-released has this to say about Connectivity Virtual Circuit Pricing on page 103.

        Exhibit 8.16: the CVC pricing is expected to reduce to less than $10/Mbps/Month.
        “It is currently envisaged that CVC capacity will be sold in fixed-sized blocks of capacity, with an expectation that the price will decline to $8.75 representing a CAGR of -6.2% p.a. (FY2012 to FY2025)”

        So six (6) times less than Telstra AGVC.

        • Mathew
          Posted 12/10/2011 at 5:42 pm | Permalink |

          You should have quoted that pricing starts at $20/Mbps/month $20Mbps/Month when the average data usage is 30GB/Month and falls to $8Mbps/Month when the average data usage is 540GB/month.
          So the price falls by 2.5 times, while the average data usage grows by 18 times = growth in revenue from CVC of 720% when accounting for price falls.

          This suggests either NBNCo are going to be making a lot of money or they are selling at an unsustainable level now.

      • Frank27
        Posted 12/10/2011 at 7:46 pm | Permalink |

        Actually NBN Co is building a FTTP, the government is really building nothing. NBN is a company owned by the people of Australia.

        In your hast to provide some comparisons, it would be interesting to do some model pricing to see the real costs if the NBN was constructed by a non-government entity (and probably without the monopoly legislation afforded to the NBN.

        If this infrastructure was cost effective to deliver (to almost all Australians), it would have been already done, but sadly all Telstra’s competitors couldn’t even get together and even do that. Nearly everything they want is for someone else to pay for and access for next to nothing.

        Simon Hackett’s real problem is he has a private company, that is cash strapped but wants to be one of the big players in the game.

    5. Granny Anny
      Posted 12/10/2011 at 3:57 pm | Permalink |

      Advocates of FTTN are assuming that the existing copper is all in first class condition. Don’t overlook how old most of it is, and also the magnitude of the number of pair gain systems used to overcome capacity shortfalls. In other words, much of the copper will have to be replaced for reliable and faster broadband. Why would you do this if you can haul cheaper fibre into existing ducts.

      • Posted 12/10/2011 at 4:26 pm | Permalink |

        Advocates of FTTN are assuming that the existing copper is all in first class condition.

        I’m pretty sure advocates of FTTN dont believe that at all. They believe the condition of the copper adds to the “variety” of the patchwork giving it character. It’s quaint like a rustic old heritage listed house with a garden filled with things like lavender and cornflowers. That’s just the way communications networks should be in 2021 by crikey by gum.

    6. Kevin
      Posted 12/10/2011 at 4:59 pm | Permalink |

      Got that’s an awful photo of him. Please find something better… he deserves more.

    7. Mathew
      Posted 12/10/2011 at 5:44 pm | Permalink |

      Why don’t we follow the New Zealand approach:
      On 31 March 2008, Telecom was operationally separated into three divisions under local loop unbundling initiatives by central government – Telecom Retail; Telecom Wholesale; and Chorus, the network infrastructure division.
      (source: http://en.wikipedia.org/wiki/Telecom_New_Zealand)

      • Posted 12/10/2011 at 7:22 pm | Permalink |

        I think it’s a bit late for that now.

        • Posted 13/10/2011 at 12:34 pm | Permalink |

          The Keating government started the separation. Howard government stopped it.

    8. Anonymous
      Posted 13/10/2011 at 12:23 am | Permalink |

      I find this funny, This is exactly what Telstra was going to do by themselves and wa going to shell out 6 billion to do it as long as they had the network 100% for their own customers.

      This guy plus others complained bitterly about that and wanted to get on the Telstra owned fibre network for free, yet also wanted it to be fibre to the home and thus the labour giv stepped in and now we have the NBNco and network.

      Now this same guy wants a fibre to the node network set up instead the very thing telstra was wanting to do yet everyone whinged about them doing it even though it’d have meant all copper lines would be handed out for free and also maintained by Telstra for anyone for free as well.

      How times have changed, The funny thing is Telstra won’t and the Government can’t have Telstra shut down whole parts of the copper network as who will keep that copper maintained not internode I take it and what will you use for a phone line while the area only has copper lines to it and 3rdly, what happens to those people who don’t bother with the fibre connection at all.

      As not only will they lose the Phone/DSL line but that customer becomes a mobile only customer straight up, and this guy’s company will lose customers all over the place.

      I don’t think he completely thinks things through.

      • NBN - maybe
        Posted 13/10/2011 at 2:31 pm | Permalink |

        More the point you have not thought things through. If as you say people move to mobile then the NBN fails and we the people have an expensive white elephant.

        None of the current statistics support a mobile only future rather that mobile is complementary to fixed line. While mobile usage is growing the actual amount of data downloaded by mobile is not increasing and is tiny compared with fixed line.

        Without people like Simon challenging the proposals you get less than ideal outcomes for everyone. Sure he runs a company that wants to make a profit but surprise surprise the same goes for every other company out there :).

        The NBN will never be built as it is planned today as there will be changes of government a few times over the journey and each will want their own stamp on it. Should the government change at the next election expect to see the NBN paused while a Productivity Commission report is undertaken and that could be a couple of years.

        • toshP300
          Posted 13/10/2011 at 5:47 pm | Permalink |

          *While mobile usage is growing the actual amount of data downloaded by mobile is not increasing and is tiny compared with fixed line.*

          what matters is the “dollar value” accorded by consumers to the “data downloaded”.

          the amount of data downloaded by mobile is actually skyrocketting. but, that is besides the point. what matters is that consumers are paying more $$$ for mobile data than fixed data. the growth in fixed data reflects doubling of internet quotas for the same price point every 12 months or so. fixed network operators are not gaining any extra revenue from the growth in fixed data. mobile operators are (from mobile data growth).

          show me the money. (all these fixed traffic growth trotted out by NBNco are meaningless in the absence of dollar revenue growth.)

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