The NBN is in a regulatory hole: Time to stop digging


This article is by Stephen King, Professor, Department of Economics at Monash University. It originally appeared on The Conversation.

analysis Has there ever been a bigger policy mess than the NBN? The latest claims are that NBN Co risks breaching Australia’s consumer law on the grounds of misleading and deceptive conduct. So how did it get to this?

For fibre-to-the-node (FTTN) and fibre-to-the-basement (FTTB) connections, NBN Co will offer five different products with different speeds. But some areas will not have access to the fastest speeds. Despite this, NBN Co has said it will sell all packages in all locations, even if the access speed in a package is unattainable. In the spirit of “caveat emptor”, NBN Co believes it is up to the customer and their service provider to work out if the NBN can deliver what NBN Co is selling.

At a minimum, this appears to be a bizarre business strategy aimed at annoying customers. At worst, it may be misleading and deceptive conduct. And the Chairman of the Australian Competition and Consumer Commission (ACCC) appears to have confirmed this possibility to Senate Estimates this week.

Unfortunately, this is only the tip of the iceberg. The NBN risks being tied up in regulatory knots and legal uncertainty.

The “knots” are the existing telecommunications laws in Part XI of the Competition and Consumer Act (CCA). Part XIB of the CCA sets out special rules for dealing with anti-competitive conduct in telecommunications. Part XIC sets out the access rules for telecommunications networks. These laws were originally nicknamed the “Telstra rules”, but they catch the NBN as well.

NBN Co has already experienced the bureaucratic nightmare these rules create. In December 2011, NBN Co lodged a “Special Access Undertaking” (SAU) for ACCC approval. Just over two years later, in December 2013, the SAU was accepted by the ACCC on a third attempt.

This delay does not reflect badly on either the ACCC or NBN Co. The access rules are convoluted and complex. However, as the NBN business model is reformulated following last year’s federal election, it is not clear that the SAU accepted last December will work in the future.

For example, in March this year NBN Co was unable to meet its commitment under the SAU to publish roll-out information. The reason? Well, with the change in the NBN model, it is far from clear what the roll-out will look like. As NBN Co stated to the ACCC:

At this point … there is not a sufficiently robust basis on which NBN Co can prepare the 1-year Construction Rollout Plan or the 3-year Construction Rollout Plan.

Depending on how the NBN is developed, NBN Co may have to start the SAU process all over again.

The uncertainty stems from the NBN Panel of Experts. The media has focused on the panel’s cost-benefit analysis of the NBN. But the terms of reference for the panel also include a review of the current telecommunications access arrangements.

A review of these laws is desirable. The starting point should be a simple question: why are telecommunications so different to other infrastructure industries that special laws are needed?

And the panel is taking a broad-brush approach. But this necessarily means that NBN Co is trying to work within a set of rules that may change.

For example, the panel has questioned the length of the NBN SAU accepted by the ACCC. The SAU runs until 2040. The panel has argued this is too long and inconsistent with broader government policy. If the rules change, then the SAU process will have to start again.

Under the current NBN model, NBN Co will still face on-going issues even if it can navigate the regulatory quagmire. As I have noted before, the NBN business model involves cross-subsides from the city to pay for the bush. But if competitors can cherry-pick the city users of high-speed broadband, the NBN will become unviable.

There are three potential solutions to this problem.

First, increase regulations to prevent competition. This was the approach under the previous federal government. But in telecommunications, it is doomed to fail. Innovation will find ways around the rules. Second, leave NBN Co to fend for itself. This will either lead to large losses or push NBN Co to try and use its muscle to prevent competition. Of course, the latter path would bring it into conflict with the ACCC.

Third, reformulate the NBN model to concentrate on the actual problem – inadequate broadband in rural and regional Australia. Build a rural and regional broadband network and fund it explicitly from tax, not from a hidden cross subsidy.

This third approach solves the problems but would take strong political leadership. It would mean “unwinding” various agreements. But as the saying goes, when you are in a hole, stop digging. The NBN is looking like a large pit, and at present, everyone is digging in deeper.

Stephen King was a Commissioner at the ACCC from 2004-2009. In the past 20 years he has advised numerous telecommunications carriers and regulators.

This article was originally published on The Conversation. Read the original article.

The Conversation


    • Ziggy introduced us to 3 GB download limits, charged $189 per gigabyte above that and limited speeds artificially to 1.5/256. Copper maintenance under him (but, admittedly, during other times too) also went to hell.

      He got an AO for that accomplishment. And so, I also have a plan.

      I will run out, naked, find the first milling machine and start tearing up the tarmac all over the place. I’ll also weld I-beams to the side to make sure no one can pass. Although if people really want to pass, I’ll let them, for a cheap price of just $189.

      My services to society – doing all that – have got to be worth at least an AO. It amounts to doing pretty much the same thing, after all. Maybe I’ll even get a knighthood?

  1. The political (driven by others) intent is to destroy/mislead/confuse so that nothing happens but lots of money is spent. We are all losers but, people outside of economically viable areas (country Australians) are the BIG losers. They already have effectively nothing in internet services and this will continue.

    Perhaps the real intent is to push the #NBN to the State level so that it becomes a state level issue. The political philosophy is of course to do nothing and allow private enterprise (laughing) to fill the vacuum/requirement.

    I live in a city suburb in which, unlike many, I have access to both ADSL and cable broadband. I have also experienced the poor excuse for internet/telephony service that country people suffer. The original #NBN provided as near as possible a “level playing field to all”. Current game play allows quality internet for the few who can afford and the sale of taxpayer funded satellites, on the cheap, to your business mates.

  2. The problem I have with this article is that Stephen King has missed the point of the NBN.

    While it would provide substantially better outcomes for rural & remote areas, that’s not the primary purpose of it.

    The primary purpose was to break Telstra’s grip on the market, which has held back telecoms development in Australia for decades, and provide a truly competitive market. Having a highly regulated, government-owned wholesale provider gives the opportunity to have true retail competition, unlike that joke of a market in the US, where there are (were?) multiple providers, but depending on where you lived, you probably only had a choice of 2 or 3 at most, and very large parts of the country are monopoly situations with only one provider, and pricing structures to match.

    Having that gov’t-owned wholesaler use future-proof infrastructure like FTTH is the only logical choice, because otherwise the wholesaler becomes yet another roadblock to progress, like NBNCo is rapidly becoming under the coalition with their MTM joke.

    • This. How a Prof of Economics can fail to grasp, let alone include in an articulate way, the pigsty of a mess left by the epic failure of telecommunications restructure during the Howard-Costello years (Telstra partial-privatisiation anyone?) I do not understand.

      For the national-natural monopoly holder and wholesaler to hand-in-hand *be* a competitor is a joke. The ALP failed to go hard on the LNP on this, due no doubt to the consensus approach that the Rudd years began with, however it’s not to say that they should not be running hard with it now.

      The telecommunications structure in this country is in major need of a top-to-bottom overhaul, and NBN was part of that for fixed communications.

  3. Interesting read. The problem isn’t so much the regulations (oddly) it’s how we’ve gotten to this point and the resulting bastardry that has to occur to make Malcolm’s vision work (hint: it doesn’t).

    The article mashes NBNco the company with NBN the network and interchanges both as the same thing.

    NBNco exists for many reasons, the primary reason is to resolve the issue of ownership and separation. At the time, it leased access to Telstra ducts, granted, but was the owner of the vast majority of it’s network.

    NBN exists to form a new network, built by NBNco, but to provide back-haul and network connectivity as a wholesale only service.

    The problems now arise in that we’re beholden to a network operator that’s also a retail entity for an ever-increasing array of technologies and services. This was never envisaged.

    Both sides of the house stopped talking to Telstra. Now we’re forced to. Again. This can only lead to more money being spent to buy Telstra’s compliance.

  4. “… increase regulations to prevent competition. This was the approach under the previous federal government. But in telecommunications, it is doomed to fail. Innovation will find ways around the rules.”

    I find it very interesting that with everything you have written, your rationale disputing the viability of the original NBN model is to dismiss it with a single unsubstantiated line: ‘Innovation will find ways around the rules’.

    Let’s look at that statement. You have rules, and the assumption is those rules are in opposition to the interests of private companies, which provides the motivation and stimulation for innovation allowing them to circumvent those regulatory rules. However:

    1) The new environment created around the NBN and the regulatory rules supporting it create an environment that is vastly improved over anything the telecommunications industry has ever seen in this country – every telco and ISP is better off in this new environment with the sole exception of Telstra. If this regulation is removed, setting up a ‘Wild West’ of uncontrolled competitive expansion of FTTP in the most profitable areas, there will be one real winner and many smaller players left to scrabble over the scraps – the 800 pound gorilla will dominate once again, because they’re the only one with the budget and workforce to deploy simultaneously across the whole country. And if that doesn’t work they’ll do their utmost to frustrate competitors by denying them access to pit, pipe and duct infrastructure, giving them a further competitive advantage. Only Telstra will benefit from this outcome, so only Telstra would seek to circumvent the rules. As they have time and again in the existing environment for two decades.

    2) This isn’t just about rules. The rules are necessary, particularly in the short term. But once the network is fully rolled out, the market will be self enforcing. Once the whole country is connected to NBN fibre it becomes unfeasible to deploy a competitive network even if regulatory laws prohibited it, because it is extremely costly and it would be impossible to attract enough customers away from NBN fibre to make the enterprise ROI positive.

    And both of those arguments assume that the legislation set in place to govern and control the industry would be ineffective, a situation that has little to no basis in evidence, history or legal thinking – sure, there are regulatory controls that prove ineffective over time, but legislative regulation is used to control, limit and provide a framework for innumerable industries quite effectively. There’s nothing special or magical about telecoms that somehow makes it exempt from such legislation or regulation.

    Your argument seems to be, instead of trying to find a cost neutral solution to the tremendous infrastructure challenges of a national telecommunications network which lends itself to a natural monopoly (and in fact devising a plan that will return an income to the government despite costing individuals less that currently available broadband options and providing a level playing field for RSPs) you propose that the government create a subsidy black hole model for regional and ‘unprofitable’ areas while allowing private companies to fleece as much income as they’re able to squeeze out of their mini-monopoly ghettos, because the vast majority of the country will only receive a single telco cable as it is cost prohibitive to attempt to compete with an incumbent fibre owner. Your plan is bad for tax payers (because it will be and endless drain on the budget) it is bad for regional Australia (because there will be no incentive to continue to upgrade their services in line with private network capabilities, in fact there will be disincentives), it will be bad for retail customers of private fibre telcos because monopolies always seek to maximise profits by charging as much as they can for services while spending as little as possible on support and maintenance, and it will be bad for all but the biggest telcos who will become incumbent fibre providers in the areas they manage to capture, guaranteeing predictable profits from their fibre ghettos indefinitely, while RSPs will continue to be squeezed out (you know, like Bigpond still controlling 40% of the retail Internet market). Let’s not forget the problems introduced by the interconnection of different networks owned by different private companies with a disincentive to make those networks compatible.

    No, Sir, the only winner from this scenario is Telstra. Again. But this time, forever.

  5. The real money pit here is the Coalition continuing to shovel money Telstra’s way…

    We had a nice plan to solve the “Telstra Issue”, but now that’s shot to hell.

  6. I would take issue with the factual basis of “the actual problem – inadequate broadband in rural and regional Australia.” The actual problem is twofold: Telstra’s monopoly (expressed above by my fellow-commenters), and inadequate broadband *almost everywhere* in Australia. I run a medium-sized enterprise’s 30-site network, and we deal with DSL tail outages on a daily basis in suburban areas that ought to have better. The copper is dying, and we need to get a real solution in place before it’s too late.

  7. Let me just add my voice to all of the others who say that Stephen King is missing the point when he says “the actual problem – inadequate broadband in rural and regional Australia.”

    With such a narrow view of the situation, it’s no wonder you’d come to such an inadequate conclusion.

    Also, I’m pretty sure we tried the directly-subsidise-the-bush-from-tax-dollars approach already. Someone remind me how that turned out?

  8. Who knew what…and when?

    the evidence suggests they (the Government and NBN Co) have known for a long time: and did nothing.

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