Telstra submits regulatory wish-list to government

Telstra will bow out of NBN if structural separation is enforced.

Telstra has submitted to the Federal government its proposal for what regulatory framework it believes is needed to meet Senator Conroy's vision of an open, competitive high speed national broadband network.

Under the tender process, a submission outlining regulatory framework for the NBN is required by all bidders, but is also open to non-bidders who wish to have a say in the regulatory framework of the new network.

The key component of Telstra's submission is a call for regulatory certainty, with an agreement on the terms of core wholesale access to the NBN to provide certainty for investors and wholesale customers and to attract the multi-billion dollar investment required to build the network.

Telstra has said that if the NBN is going to be built, the builder needs up-front certainty that its investment will not be undermined or given away by regulatory changes once a decision to invest is made.

Senior media relations manager for Telstra, Jeremy Mitchell, said that currently a lack of regulatory certainty, and the fact that regulatory settings have been designed for the old network, has led to a lack of investment because the ACCC has the power to change regulation and pricing at will.

"If you get certainty in the market for whoever wins it - Telstra or not - they are going to need that certainty because you are talking about billions of dollars of investment. The return on that capital will happen over years, even decades, so you need that certainty to know what rules will be in place and what will be happening as far as returns on that investment," Mitchell said.

Telstra also rejected claims that structural separation is essential in Australia and said it will remove itself from the build process if this occurs.

"This idea that our competitors are arguing for - the actual split of Telstra - is proven not to have worked overseas and if it is on the agenda we will not be a participant in the national broadband network," Mitchell said.

As part of its submission to the Federal government, Telstra submitted evidence from a number of independent international experts stating that a split of Telstra is unnecessary and would not work.

Kip Meek, former commissioner of the UK's independent telco regulator and competition authority, Ofcom, said the UK (British Telecom) form of structural separation was designed to address severe problems of non-price discrimination which he does not believe exists in Australia.

"I would not recommend that the UK form of separation be used as a starting point in the Australian context," Meek said.

"I am also of the view... that more radical measures, such as structural separation, would involve substantially escalated risk and costs. The demand risks and uncertainties associated with building a Next-Generation Network, especially where it is intended to replace the PSTN, seem to me to raise doubts about whether a non-vertically integrated approach would be able to achieve the necessary level of investment co-ordination."

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Telstra also offered analysis from several US experts in its submission, including a former senior executive from Sprint, James Sichter, who said that the US experience clearly shows that structural separation is a costly diversion.

Telstra's Mitchell said the reason structural separation occurred in countries like Britain, the Netherlands, Sweden and Denmark is because there have been bottlenecks that allow the incumbent to take advantage of competitor's access limitations.

"The whole thing that changes with a new NBN is those bottlenecks will be removed - the limitations that we have in exchanges will no longer happen."

However, managing director of Telarus, Jules Rumsey, told Computerworld that he feared a Fibre-to-the-Node network as proposed by Telstra would simply lead to a repeat of exchange space limitations, this time within the node cabinets.

"With FttN, where you've got fibre down to somewhere in the neighbourhood or business district and then copper from there to the premises, the cabinet is going to be restricted in terms of space, heating and cooling. There aren't going to be opportunities for other players to install infrastructure in some or all of those cabinets," Rumsey said.

Telstra agrees that a Fibre-to-the-Premises network would be ideal, but is simply too costly to build except in greenfield locations.

"We agree FttH would be ideal, but the financial realities of building that would blow the costs out amazingly. When you're talking already between $15-25 billion just to do FttN, the increase to do FttH would escalate that to a level we believe is not financially viable," Mitchell said.

Group managing director of Telstra Wholesale, Kate Mckenzie, assured the government in its submission that the incumbent was fully committed to an open access NBN that would result in equivalent access to all retailers, providing a platform on which all providers, including Telstra, could innovate and differentiate the services they choose to offer and compete on service and value.

"The core wholesale services will be made available to access seekers on a basis equivalent to Telstra's own business units," she said.

The Coalition has launched a senate inquiry into the government's National Broadband Network (NBN) proposal to evaluate its effects on competition, amid industry criticism that the NBN tender documents are too vague to ensure the network will be open-access and pro-competitive.

Other submissions in Telstra's proposal to the government include:

  • Maintaining the integrity of the network, which means the Government should not try to slice up the network and give different elements to different providers and the Government should not force the network operator to accommodate old and new technologies, which are not compatible;
  • Given the critical importance of telecommunications to public safety and national security, bidders must be able to demonstrate how their plan will provide for emergency services, particularly during the migration phase;
  • Unnecessary regulation aimed at legacy networks should be removed;
  • Land access arrangements need to be streamlined to facilitate the deployment of more than 50,000 nodes; and
  • Important consumer protection and social policy objectives must be properly identified and funded.

"Building the NBN is an enormous task - the biggest infrastructure build ever undertaken in Australia - bigger than the Snowy Mountains scheme. It will require billions of dollars of investment, more than 50,000 nodes and the rollout of more than 100 thousand kilometres of new fibre," McKenzie said.

"Telstra stands ready to build it. We have the technology, the know-how, the expertise, the resources and the track record of getting things done, but the Government needs to bed down the regulatory changes needed to attract the investment. Without decisiveness, there is a real risk this thing won't happen.