The national broadband network form guide

The mystery surrounding the national broadband network (NBN) will end this week when the winner is revealed by Prime Minister Kevin Rudd and Broadband Minister Stephen Conroy.

The $4.7 billion NBN is the largest nationally funded infrastructure project since the Snowy Mountains hydro-electric scheme 50 years ago. At least another $5 billion in private funding will be required on top of the federal funding.

So to make interpreting the final result easier, here is a thumbnail guide to the NBN, the legal and regulatory framework that will underpin it, the major actors and the potential winners and losers.

THE NBN: The winner will have to roll out and operate a national network using fibre connections to nodes on street corners, commonly referred to as FTTN (fibre to the node). It must deliver broadband speeds of 12Mbps to 98% of Australian homes and businesses.

It will have to offer open access arrangements with equivalence of price and non-price terms so that access seekers can differentiate their product offerings. The NBN has been described by one telco as a “replacement network” for Telstra’s monopoly. It could take up to six years to build.

THE BIDDERS: The three bidders for the NBN are Optus Networks, Axia Netmedia and Acacia. Optus is owned by Singapore Telecommunications. It has given options to others to acquire minority shareholdings in the bid vehicle. Axia is a Canadian-owned company that operates open access networks in Alberta Canada and in France.

Acacia is funded by prominent businessmen in Melbourne including Doug Shears and Solomon Lew. It includes a number of former Telstra executives including former Telstra Countrywide boss Doug Campbell and Telstra executive Lawrence Paratz.

INTERCONNECT: The NBN operator must interconnect with Telstra’s customer access network. Interconnection will involve a cutover from Telstra’s network to the new fibre network at the nodes in the street. Access seekers can then lease the copper from the nodes to households or businesses. This is called sub-loop unbundling, which Telstra vehemently opposes.

THE ACCC: The Australian Competition and Consumer Commission will likely make the NBN a declared service, which means it must be supplied to access seekers on request. Under Part XIC of the Trade Practices Act (TPA), the ACCC can determine the terms of access to a declared service. This would take into account the long-term interests of end users.

ACCESS RIGHTS: If the NBN operator is providing a declared service, then it is almost certain that it will enter into a special access undertaking with the ACCC. This would set out the terms and conditions under which it would provide the broadband services to wholesale customers.

CONROY’S FIRST ACE: The Minister has broad power under the Trade Practices Act to intervene in the pricing of services. This power, under section 152CH of the TPA, has never been used. Conroy could well bring it into play to avoid a lengthy court fight with Telstra over sub-loop unbundling. A ministerial pricing determination would set out compulsory principles for access pricing that must be followed by the ACCC.

CONROY’S SECOND ACE: The Minister also has a broad power to vary Telstra’s operational separation plan. Conroy might use this power to determine how Telstra conducts its wholesale and retail businesses to ensure they dovetail with the operation of the NBN.

TELSTRA: In the past week, Telstra has been making some conciliatory noises about the NBN including an apparent olive branch from the chairman Donald McGauchie. But the fact is that Telstra opposes sub-loop unbundling and estimates it might lose up to $2 billion in revenue from an NBN. It says sub-loop unbundling has not been done anywhere else in the world.

There is the possibility Telstra will fight the NBN terms and conditions in court. That would probably end up in the High Court. However, the last time Telstra took the Government to the High Court seven judges reaffirmed the right of other carriers to connect to Telstra’s network.

T3 INVESTORS: There are claims that an NBN will somehow breach the commitments made to T3 shareholders when the last chunk of government shares were sold in late 2006. In fact, every possible risk to Telstra’s operations from regulation was comprehensively covered in the T3 prospectus, including Conroy’s two aces.

NATIONAL SECURITY: Telstra has argued that the NBN should be the subject of a national security agreement with the Government along the lines of the agreement between Alcatel-Lucent and the United States Government. Conroy is likely to be asked to explain the measures put in place to protect Australia’s national network architecture.

Any Government ban on Chinese-owned equipment supplier Huawei or Chinese-owned network operator Asia Netcom would create waves. That sort of ban would be unlikely. Asia Netcom used to provide network services for Australian embassies.

NBN PRICING: There seems to be a consensus in the industry that NBN wholesale access pricing will be similar to the $24 a month charged by Telstra for unbundled local loop services. There will be political pressure on the NBN provider to ensure the cost to consumers is not much different to the current price for high speed ADSL2+ broadband of about $75 to $85 a month.

STRANDED ASSETS: Over the past five years companies such as Optus, Primus, AAPT, Soul, iiNet and Internode have installed their own equipment in about 1000 Telstra exchanges, mostly in urban and central CBD locations. They have been able to largely bypass Telstra’s network and offer voice and broadband services. The NBN will result in this equipment becoming stranded. Therefore Conroy will be under pressure to provide those companies with sufficient time to amortise their investment.

TECHNOLOGY: The NBN will effectively offer wholesale customers a bitstream service. That will allow access seekers to offer voice and broadband services to households through the sub-loops from the nodes on street corners.

WINNERS: The big winners will be people living in rural and regional areas who are currently unable to access broadband services. On the corporate side, telcos that have invested in building their own networks should benefit from the roll out of fibre backhaul in regional areas. The NBN is not a gift to broadband suppliers. Wholesale users will have to apply their investment, expertise and technology in order to deliver differentiated services. The key to NBN success is the electronics on either end of the line.

LOSERS: There are hundreds of providers of broadband using a technology called spectrum sharing services (SSS), which allows the access seeker to provide broadband while the voice service remains with the access provider. SSS is currently available to access seekers at about $3.20 a month for services costing up to $50 a month. These profit margins cannot be maintained, so it will be interesting to see how those relying on SSS respond.

This article first appeared on Business Spectator