NBN should be prepared for disaggregation: ACCC chair

Rod Sims repeats call for NBN to be prepared for potential break up

The chair of the Australian Competition and Consumer Commission, Rod Sims, has repeated his belief that NBN should be prepared for a potential future breakup of the company into separate entities.

"I am on the record as an advocate for NBN Co putting in place measures that will facilitate future infrastructure-based competition," Sims said in remarks prepared for the Australian Communications Consumer Action Network conference in Sydney.

"In particular, NBN Co should put in place arrangements that provide for the future separation of NBN Co at an appropriate time into separate businesses that can compete with one another, for example based on delivery technology."

"In communications markets the ‘gold standard’ is infrastructure-based competition," Sims said.

"Infrastructure-based competition is essentially networks being built to provide services in competition with one another. Where this is efficient – often in highly populated areas – it leads to the best outcomes in terms of prices and quality of services for consumers."

In a speech delivered to the NBN Rebooted conference last year, Sims also said that the company in charge of rolling out the National Broadband Network "should put in place arrangements that provide for future separation of NBN Co at an appropriate time."

"Such arrangements should include internal systems, accounting and reporting arrangements. The ACCC's experience is that if this is not done early it will be extremely difficult to do down the track.

"While putting in place such arrangements may come at some initial cost, the benefit of doing so when it comes to separating the business in future will be far in excess."

One of the 19 recommendations contained in the third report of the government's Vertigan panel (chaired by Dr Michael Vertigan) was "the disaggregation and divestment of NBN Co's transit, satellite and fixed wireless business units, along with associated obligations, including with ongoing subsidies if they prove to be necessary".

The report, released in August 2014 said that separate entities could operate the satellite network, the fixed wireless network and the HFC network, while NBN Co (which later rebranded as NBN) continued to operate the FTTx network.

"If NBN Co is successful in acquiring the network [NBN signed agreements with Telstra and October in December 2014 to acquire the telcos' HFC assets] and the Government considers that full divestment is not achievable, it disaggregate NBN Co’s HFC network from its FTTx network to the greatest extent possible," the report stated.

"[W]ere full disaggregation not to proceed immediately, the Government direct NBN Co to move to the transitional internal arrangements identified as a preparatory stage, with a further independent review of market structure being conducted in no more than five years’ time," the report recommended.

"These more focused entities would have smaller, more manageable mandates, thereby reducing financial risks to taxpayers and improving the chance of efficient and timely network rollout," the report said.

"Additionally, divesting these assets to specialist operators with established track records would shift risk from taxpayers onto the investors best placed to gauge, bear and manage those risks."

In its initial response to the final Vertigan report, the government indicated it had no short-term plans to break up NBN Co.

"While disaggregation of NBN Co's business units (as the panel recommends) after the network is complete cannot be ruled out, now is not the time," a statement issued in October 2014 by communications minister Malcolm Turnbull said.

"Breaking up NBN Co would distract its management and delay the provision of high-speed broadband to all Australians."

In a lengthier response to the Vertigan review (PDF) issued in December last year, the government reiterated its view that disaggregation of NBN in the short term would potentially delay the rollout and be a distraction for the company's management.

"However", the document added, "optionality for future restructuring or disaggregation should be retained, to provide future governments with greater policy and financial flexibility."

"To this end, NBN Co will be required to maintain separate accounts for its satellite, fixed wireless, FTTx, HFC and transit networks," it stated.

"It is the Government’s preference that NBN Co develop operational and business support (OSS/BSS) IT systems that are readily separable by business unit so that these systems do not become a barrier to any future disaggregation.

"This may involve high costs, however, and so the costs of implementing separable OSS and BSS systems will be investigated by an independent party. This work will commence promptly with a view to it reaching a conclusion no later than 1 July 2015."

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