Vertigan panel sees no need to tighten NBN wholesale rules

NBN Panel of Experts issues first report

The first report out of the NBN Panel of Experts, appointed by the government to conduct a cost-benefit analysis of the National Broadband Network, has rejected calls by telcos to further strengthen the rules that restrict NBN Co to wholesale-only operations.

The panel — also known the Vertigan panel after its chair, Michael Vertigan — in March issued a paper that sought comment on the regulatory environment in which the NBN is being rolled out.

Yesterday the panel released a report (PDF) addressing the part of its terms of reference that mandated it examine the "optimal long-term ownership and regulatory arrangements" for NBN Co.

The panel is still to release a final cost-benefit analysis of the NBN.

In separate submissions to the panel, Telstra, TPG, Vodafone and Optus called for the removal of the utility exemption. In addition Telstra, Optus and iiNet stated that they believed that the wholesale-only restrictions imposed on NBN Co need to be tightened to avoid situations where large enterprises get carrier licences as a means of doing an end-run around RSPs and dealing directly with NBN Co to save money.

In a submission iiNet argued that “obtaining a carrier licence is a relatively straightforward matter that is unlikely to be an effective barrier to a large corporate entity that is looking to save costs on its telecommunications services by obtaining services directly from NBN Co”.

“There are no licensing requirements to become a carriage service provider,” the telco stated.

NBN Co was established to operate only as a wholesaler of NBN access. Part 2 of the National Broadband Network Companies Act 2011 restricts the NBN corporations to supplying services only to carriers and service providers on a wholesale basis, prevents it from providing content and other non-communications offerings, and allows it only to provide Layer 2 services.

The act includes some exemptions; for example, NBN Co may deal directly with transport authorities, and power and water utilities, as long as the NBN services are not resold.

Yesterday's report states that while it is "appropriate for NBN Co to be structurally separated and it should maintain its wholesale only status", the panel "broadly accepts the arguments put by NBN Co" that existing regulations are enough to ensure the company's wholesale-only status.

In a submission NBN Co argued that even “where large corporate customers do purchase services from NBN Co for internal use – that is, not for retail purposes – NBN Co remains a wholesale-only provider, as its products are not sold in a form suitable for end-user consumption (except in a small subset of cases).”

"[I]f the performance of service providers is such that it becomes an attractive option for end-user firms to deal directly with NBN Co, it is not clear that it should be closed off to them," the Vertigan panel's report states.

"On the contrary, doing so would merely perpetuate the retail underperformance that had induced by-pass and, in the process, unnecessarily increased costs to business.

"Additionally, placing further restrictions on NBN Co’s line of business activities may have unforeseen consequences and unnecessarily restrict NBN Co’s ability to develop innovative business models."

The panel recommended that no action should be taken to tighten the restrictions on NBN Co, but that the government "should be prepared to investigate the operation of the retail market should a situation eventuate where large corporate customers seek to by-pass retail service providers as a matter of course and acquire services directly from NBN Co for their own internal use."

In general the report argued that the existing framework governing NBN Co remain "largely unchanged" for now albeit with "some important modifications".

"The recommended modifications deal mostly with NBN Co’s non discrimination obligations, regulatory recourse to the Australian Competition and Consumer Commission (ACCC) in relation to an NBN Co access agreement and oversight of regulatory decision-making," the report states.

Those modifications include greater scrutiny of the ACCC's decisions and that "Sections 152AXC and 152AXD of the Competition and Consumer Act 2010, which apply to NBN Co alone, should be replaced by provisions that allow discrimination by NBN Co where it aids efficiency or is otherwise authorised by the ACCC."

"NBN Co’s non-discrimination obligations have the potential to curb its ability to take advantage of efficiencies," the report argues.

"For example, it may be efficient for NBN Co to offer different price terms to access seekers that are prepared to undertake investments that reduce the costs to NBN Co of providing access, or are willing to enter into significant contractual commitments that enhance the take-up of NBN services and make NBN Co’s revenue stream more certain."

Follow Rohan on Twitter: @rohan_p

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Tags TPGnational broadband networkNational Broadband Network (NBN)nbn coiiNetVertigan reviewTelstra

More about Australian Competition and Consumer CommissionAustralian Competition and Consumer CommissionIinetNBN CoOptusTelstra CorporationTelstra CorporationTPG TelecomVodafone

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