Future of Telecommunications in Canberra

Australian Computer Society Telecommunications Special Interest Group (T-SIG) held its first Canberra meeting on Thursday. TSIG was formed from a merger of the Telecommunications Society of Australia (TSA) and ACS. The TSA is much older than ACS, being founded as the Telegraph Electrical Society in 1874. The merger recognises convergence between telecommunications and computing into IT.

The speaker for the first meeting was David Parkes, General Manager Retail for Transact on "TransACT – Past and Future". He detailed Transact's origins as a broadband, telephone and digital TV provider in Canberra and parts of Victoria. Transact was a pioneers of fibre to the curb in Australia (there is a Transact fibre optic node in the basement of my apartment building). They were an early provider of digital TV.

Transact is now installing Fibre to the Premises (FTTP) underground in to Canberra suburbs. The company installs a metal box on the outside of the house, similar in appearance to an electrical meter box. This houses the fibre termination, Ethernet and telephone interfaces and, importantly, a battery backup. The backup lasts for up to eight hours and maintains voice communications as a priority, first dropping d-TV, then Internet, to save power. While I and others, have advocated that battery backup should be part of the new NBN service, it is not c;ear this will be done and so Transact's service is superior in this respect. During Canberra's fire-storms, the service continued to operate across the city despite power brownouts (apart from the suburbs where the infrastructure was destroyed by the fire).

David provided an excellent overview of Transact's history. What was less clear was where Transact will go in the future. As he pointed out FTTP provides so much bandwidth that the current decentralised computing model can be rethought. Computing services can be centralised, with the desktop computers becoming essentially smart terminals (or thin clients). There will also be new ways to provide TV and other content. However, with the arrival of the National Broadband Network (NBN) it is not clear where Transact will find a business in this.

Transact has for years provided for Canberra, and parts of Victoria, what the NBN aspires to do for all of Australia: provide a reliable, high speed digital network to homes, with telephony, Internet, digital TV and other services. The ACT Government, who are a part owner of Transact and businesses have invested heavily in providing broadband for Canberra: what will happen to this investment with the arrival of the NBN, which has a mandate to connect all Australian homes?

Daivd outlined some of Transact's thinking of how they intend to prosper in the NBn era. Part of this is to maintain their customers and the service they provide: Transact have a functioning network and years of experience in supporting customers, whereas the NBN is still learning what to do.

No doubt Transact are also lobbying government to ensure that its investment will not be rendered worthless by NBN. It would be unfortunate of the debacle where Telestra and Optus wasted billions of dollars duplicating hybrid pay TV cable down the same streets of Sydney and Melbourne. There is no pressing reason for NBN to duplicate Transact's cabling in Canberra. NBN should cable the suburbs which Transact has not covered.

The likely future is that Transact will continue to provide services over their network to existing customers. Transact will also aim to become an NBN Retail Service Provider, delivering services to customers who use the NBN network.

Less clear are new areas with "The Cloud". David outlined how Transact were looking to resell Google Apps and Microsoft cloud based services, branded as "Storm Cloud". The servers will not be based in Australia and as David pointed out, this imposes legal limitations for commercial and particularly government customers. Smaller cloud service providers also offer locally based services from servers located in Transact's own data centre.

David also hinted at Transact providing virtual services for small business and home users. With this arrangement a virtual PC s provided on a shared server in a data centre. The customer using a think client computer, or an application running on a PC, to access it. The customer needs not worry about backing up or installing applications, as this is done for them.

While cloud and virtual PCs are interesting possibilities, these are new areas and ones Transact does not have any particular advantage in the market with. I suggest the area Transact does have an advantage in is being local to Canberra.

Australian government agencies, companies supporting them and companies providing services to the public are limited in their ability to use overseas based cloud services. Australian privacy legislation and security requirements limit the practicality and legality of hosting data on a cloud service located in another country. This, I suggest, provides a business opportunity for Transact. As a partly government owned entity which already meets Australian telecommunications legislation and has a data centre in Canberra, Transact could provide government and private customers a level of comfort their data is not ending up in some foreign location.

Transact could offer a vertical bundle, where they provide a server with the software and thin client computers (about the size of a paperback book and costing $200). Companies and smaller government agencies could afford to have a thin client desktop computer in the office and one at home for each staff member. As this could would only be used for work purposes, it would make security much simpler. The Defence project for thin clients could provide a good model for this which would overcome security objections. Transact could configure their network to separate the communications to these computers from other traffic, thus providing a level of security superior to that on the Internet.

One problem is educating clients as to what is possible. Google is doing some of this by having released some Chrome thin client computers ("Battle of the Chromebooks: Acer vs. Samsung",
By Melanie Pinola , PCWorld May 12, 2011 2:34 PM). Goggle's offerings are not that attractively priced and have severe technical limitations, making it relatively easy for Transact to say "like Google but better and cheaper".

In terms of government customers, the ACT Government is an obvious place to start. The ACT Government has recently decided to restructure itself from being a state government, to a large city council. As part of this, the ACT Government could decide to outsource its computing function and also adopt the IT standards of the federal government. Along with the servers, an external provided could provide email, applications and electronic records management. Staff would get a small thin client box to replace their desktop computer, to be plugged into their existing screen, keyboard and mouse. They could also have one to take home.

The application provided would be standardised across the ACT Government and be based on those of the federal government. This same service could then be offered to federal agencies.

NBN Business Case Summary

On 24 November 2010, the Prime Minister announced that the NBN Business Case would be released. Unusually this was not provided via a government web site, but instead through several commercial media sites and a link from the ALP web site., as well as from NBN Co. This, and spelling mistakes in the document, indicate the summary was prepared with some haste.

It should be noted that the business case is not a cost benefit analysis and does not consider social costs, or benefits, of the NBN, but is a commercial style document. There are few new details in the summary, which were not already provided in previous, carefully prepared NBN Co. documents.

NBN Co. have a technically sound plan for building a national fibre optic network, with supplementary wireless for regional areas and satellite links for very remote areas. The plan for roll-out is credible, if ambitious in terms of the rate of progress.

The major questions with the NBN are not ones for NBN Co, but for the government:

1. Is the project of net benefit to the community? In my view, an analysis would show that it is, but no such analysis has been done.
2. Will mobile wireless overtake the fixed fibre network? In my view, wireless networking will become the predominant method of access to the Internet, rendering the NBN obsolete before the project can be completed. The NBN infrastructure will still be of use, but like the copper network it is replacing, this will require ad-hoc adaptation to the new service. While the NBN is correctly described as a Fibre To The Premises (FTTP) network, almost all the customers will be using a wireless link to connect their devices in the home, so it could be better described as Wireless To The Customer (WTTC). The fact that there is a fibre link to their home will be irrelevant to most users, who will want to be able to walk around with their hand held information devices. The NBN service will only work in the customer's own home, which will be a major annoyance. Most customers will require a separate wireless service when using mobile devices outside their home. It is likely that many, perhaps most, will avoid the complexities of maintaining two broadband services and so not use the NBN. As a result it is likely the NBN will need to be retrofitted with a wireless service. It would therefore be better if the fibre system was engineered with this future requirement in mind. Which wireless technology will be used is unclear, but that it will require Femtocells is not.
   

The summary was provided as a 36 page PDF document of approximately 1 Mbyte (size varies between the different versions). The PDF version is difficult to read on screen and to download, so I have prepared a HTML version (without diagrams):

NBN Co. Business Case Summary

24 November 2010

Table of Contents

1. NBN BUSINESS CASE
2. BUSINESS ENVIRONMENT
3. KEY OBJECTIVES
4. TIMELINE AND CRITICAL DATES
5. TELSTRA DEAL
6. KEY CONCLUSIONS
7. RISK MANAGEMENT

1 NBN Business Case

The NBN Business Case is based on detailed engineering, financial and business analysis undertaken by NBN Co. over the last twelve months.

The Business Case includes robust sensitivity analysis throughout the plan, which shows that the key conclusions (outlined below) as measured against the stated objectives of the project are robust to a range of assumptions.

Information outlined below has been redacted from the Business Case with the view of providing more information without comprising the market sensitive aspects of the Business Case including those that will be impacted by outstanding Government decisions, especially a decision around the final number of Points of Interconnect (POI).

The POI decision is subject to external review by the Australian Competition and Consumer Commission (ACCC), which will be concluded on 30th November. The discussion of the conclusions below outlines the range of impacts that different decisions on the POI may have on the project’s finances.

Irrespective of the decision on the POI the NBN will realise a return higher than the long term average government bond rate, the decision itself has significant implications for the structure of the NBN and the telecommunications industry.

This Business Plan sets out the key objectives and priorities for NBN Co for the three years from 1 July 2010 to 30 June 2013.

It is anticipated that the Corporate Plan will be updated at least once a year.

The Corporate Plan is a critical part of the process of designing, building and operating the National Broadband Network (‘NBN’) and achieving the Government’s objective of providing affordable superfast broadband to all Australians through structural reform in the Australian telecommunications industry.

The Corporate Plan is prepared in accordance with the requirements of the Commonwealth Authorities Companies Act 1997 and Governance Arrangements for the Commonwealth Government Business Enterprises (June 1997).

2 Business Environment

Current forecasts anticipate that there will be more than 50 million end users connected by fibre to the premise (FTTP) technologies worldwide by the end of 2010 compared to 43 million at the end of 2009, mostly in Asia.

The key observations emerging out of the experience from global fibre deployments include;

• Government policy plays an instrumental role in overall fibre development;
• Open access network models are seen as being important in driving fibre competition at the retail level, with copper access seekers needing fibre wholesale products and a clear migration path to fibre;
• Retail pricing structure for fibre products is based around bundled (cheap or free) voice, fast broadband access and multi-channel TV. Retail price relativities are determined by broadband speed, broadband usage limits, and size and quality of the overall package bundle;
• Cost effective fibre builds and connections remain a continuous focus for operators; and
• fibre development is a long-term play with competition from cable operators to remain strong in markets where cable is entrenched.

2.1 The role of NBN Co in transforming the Australian telecommunications industry

The establishment of NBN Co and the roll-out of the NBN is a key element of the Federal Government’s plan to transform the Australian telecommunications market.

The NBN will deliver a significant, once in a generation restructuring of the industry, resolving the current infrastructure and investment bottlenecks that have seen Australia fall behind its international peers.

The rollout of a national high-speed broadband network, via fibre and wireless and satellite, will enable greater competition, services and innovation for consumers at the retail level. This is expected to lead to a new industry structure, entrants, positioning, pricing & demand drivers, and revenue and profit shares.

The NBN will also facilitate a major reallocation of capital in the telecommunications industry, which has historically been dominated by high Public Switched Telephone Network voice revenues.

The decline of voice revenue is already underway, and is expected to accelerate with the advent of high quality Voice over Internet Protocol (VOIP) under the NBN. However, declining voice revenues are expected to be substituted by increasing broadband revenues, as business models continue to shift from toll calling charges to access charges.

In addition, the significant investment by Internet Service Providers in Digital Service Line Access Multiplexers (DSLAMs) and other equipment in order to provide broadband services over copper is expected to be redirected to content, service differentiation and value added services over the NBN, fuelling the development of new applications and innovation that will drive consumer demand.

As a wholesale provider of services with no participation in the retail market, NBN Co is set to address the problems currently arising from the primary infrastructure owner and wholesale access provider also holding the position of market share leader in almost all segments of the industry. This separation should in time allow a simplification of the regulatory regime and greater certainty for industry participants at all levels.

NBN Co will provide Layer 2 wholesale services only, providing flexibility to support a range of wholesale and retail business models. Larger retail service providers are expected to acquire Layer 2 products from NBN Co and use their own infrastructure to provide retail services to their customers. Smaller retail service providers may opt to use a Layer 3 intermediary for incremental wholesale services. The diversity of possible business models is expected to result in lower barriers to entry for retail service providers and to open up competition both in the major population centres and in regional areas.

3 Key Objectives

The Government has stated its broad objectives for the NBN as follows: “The new superfast network will: Connect homes, schools and workplaces with optical fibre (fibre to the premises or “FTTP’), providing broadband services to Australians in urban and regional towns with speeds of 100 megabits per second – 100 times faster than those currently used by most people extending to towns with a population of around 1,000 or more people;

• Use next generation wireless and satellite technologies that will be able to deliver 12 megabits per second or more to people living in more remote parts of Australia;
• Provide fibre optic transmission links connecting cities, major regional centre and rural towns;
• Be Australia’s first national wholesale-only, open access broadband network;
• Be built and operated on a commercial basis by a company established at arm’s length from the government and involve private sector investment; and
• Be expected to be rolled-out, simultaneously, in metropolitan, regional and rural areas.”
• To design, build and operate the broadband network required as the foundation of the Government’s NBN policy the Government established NBN Co on 9 April 2009 as a Company under the Commonwealth Authorities Companies Act, 1997.

NBN Co’s objectives can be summarised as:

1. The network should be designed to provide an open access, wholesale only, national network, covering all premises;
2. The technologies utilised should be fibre to 93 per cent of premises (including Greenfields developments), fixed wireless to 4 per cent of premises (delivering at least 12Mbps), and satellite to 3 per cent of premises;
3. The pricing principles to be employed should ensure uniform, national wholesale pricing accessible on non-discriminatory terms; and
4. The network expected rate of return should be in excess of current public debt rates.

NBN Co has designed a layer 2 network that satisfies the four objectives set above.

Once NBN Co’s Corporate Plan is approved by Government (in this first year of operation NBN Co’s Corporate Plan primarily relates to the design of the network,) NBN Co will commence full-scale build and operation of the network.

3.1 Achievability of the Objecties

The major objectives and timeline are dependent on the rapid resolution of Government policy dependencies as well as the progress of the negotiations with Telstra, all of which appear to converge towards the end of the 2010 calendar year.

The charts below show the coverage under each technology.

93% Fibre Coverage

[Diagram omitted]

93% Fibre + 4% Wireless

[Diagram omitted]

93% Fibre + 4% Wireless + 3% Satellite

[Diagram omitted]

4 Timeline and Critical Dates

There are four distinct phases in the early delivery of the National Broadband Network:

1. Establishing NBN Co;
2. Planning and Design;
   1. Products & Pricing;
   2. Network Design & Testing;
3. Construction; and
4. Commercial Operations.

4.1 NBN Co has identified five critical dates in the overall program plan for FTTP:

December 2010	Complete Telstra negotiations	Finalise agreements with Telstra on decommissioning of copper and hybrid fibre coaxial (HFC) networks and infrastructure usage; subject to Conditions Precedent.
April 2011	Start Customer Trial	Capability to connect at least one mainland based retail service providers (RSPs) with trial customers offering a free subset of products to test preparedness. All NBN Co support with manual processes.
June 2011	Completion of Telstra Definitive Agreements	All Conditions Precedent satisfied, including enabling legislation, ACCC and Telstra shareholder approvals.
September 2011	Ready for First Commercial Service	Capability to fulfil, activate and assure a limited number of products with multiple RSPs and up to 6 per cent of premises passed. Supported with a combination of basic semi-automated and manual processes.
December 2011	Ready for Business as Usual Roll-out	Capability to fulfil, activate and assure an increased number of products with multiple RSPs and up to 19 per cent of premises passed. Supported with a combination of advanced semi-automated and manual processes.
August 2012	Ready for Market	Fully automated systems, no limitation in activating as a percentage of premises passed. Multiple RSPs certified; critical volume available and predictable.Operations capability can fulfil and assure the NBN Co suite of products at scale.

The period to August 2012 will be focused on the establishment of key systems required to support the roll-out of the NBN. This includes detailed testing of NBN Co’s network design and construction methodologies through the establishment of a test lab, the early roll-out of FTTP in twelve First Release Sites (five mainland First Release Sites and seven sites in Tasmania). It also encompasses completion of essential support systems - including operational and business support systems and enterprise resource planning - that need to be in place before full scale customer acquisitions can commence.

NBN Co is currently scaling up the FTTP deployment from the First Release Sites to full-scale network construction. It is anticipated that, following evaluation of the lessons learned from the First Release Sites, a series of ‘Second Release Sites’ already announced (14 new sites on the Australian mainland in addition to five first release sites), will be used to refine construction methodologies and systems once critical support systems are in place and operational. Based on current timetables, detailed design of the Second Release Sites will commence in November 2010, with subsequent construction commencing in February 2011. The Volume Roll-out construction will commence in June 2011.

During FY2011, NBN Co will also be finalising the design and accelerating the deployment timeframe of its wireless and satellite solutions for the ‘Last 7 per cent’. NBN Co is currently progressing negotiations for wireless spectrum acquisition, which are expected to close before the end of 2010. After a simplified procurement process, the Company expects construction of the main wireless network to start in November 2011, following a series of proof of concept and First Release sites aimed at finalising key decisions around spectrum and wireless network build options.

The long lead times in satellite construction and launch mean that NBN Co does not expect to have its own satellites in orbit until FY2015. However, the Company expects to be able to offer an interim satellite solution, called Satellite First Release Sites, from June 2011 using spare capacity on existing satellites in order to provide continuity to the existing Government Australian Broadband Guarantee program expected to cease on 30 June 2011.

4.2 Annual Updates

The assumptions made by the Company, which underpin the Plan, together with the business strategies and development of capabilities of the business, how the Company will measure its achievement of the financial and operational objectives, and the risk management and its mitigation strategies, will be reviewed on a regular basis to take into account the latest major developments; it is anticipated that the Plan will be updated at least once a year.

5 Telstra Deal

The Financial Heads of Agreement between Telstra and NBN Co paves the way for a faster, cheaper, more efficient rollout of the National Broadband Network.

Taxpayers benefit from the deal with Telstra because it reduces the overall cost of building the network and will result in higher take-up rates and revenue for NBN Co.

It also means that a greater proportion of the NBN rollout will be underground, with less overhead cabling.

It would mean Australia’s largest telecommunications company, Telstra, will become a participant in the rollout of the NBN. Telstra will become NBN Co’s largest suppliers of infrastructure and is likely to become NBN Co’s largest customer.

As no binding agreement has yet been entered into with Telstra, the Business Model includes extensive analysis of NBN Co’s No Deal scenario (which is a scenario set out in Business Model) and a comparison between the two cases.

The Corporate Plan is predicated on the execution of Definitive Agreements that give effect to the Financial Heads of Agreement with Telstra. There are two major risks with regards to this transaction:

Delay in completion: The Plan assumes that the definitive and binding agreements will be signed by end of 2010, with completion and satisfaction of all the Conditions Precedent by 30 June 2011. Any delay will impact NBN Co’s ability to finalise its network design (deployment targets, transit backhaul, fibre access network (FAN) sites and POIs locations), and therefore the Company’s ability to achieve the Plan deployment targets; and

Unwinding of the Financial Heads of Agreement: The Financial Heads of Agreement are the basis for negotiation and, if agreed, the terms of the Definitive Agreements. The terms of the commercial schedules are not legally binding. No legal obligation arises unless and until all of the Definitive Agreements are executed by the parties. Whilst negotiations and drafting of the Definitive Agreements are progressing well, there are no legal obligations on either party to agree and sign binding documentation other than to negotiate ‘in good faith’.

In addition, the Definitive Agreements will be subject to satisfaction of Conditions Precedent, including the dates by which the Conditions Precedent must be fulfilled; these include due diligence, shareholder approval as well as enacting of legislation and regulatory and other matters between Telstra and Government. In the event of the Definitive Agreements not taking effect, there will be significant impact to the implementation of the NBN and NBN Co’s Business Model; the period required to achieve full deployment will also need to be extended.

5.1 ACCC Special Access Undertaking Process

NBN Co’s announced intention is to utilise a special access undertaking approved by the ACCC to determine pricing for NBN.

The special access undertaking cannot be finalised and lodged with the ACCC until key policy matters such as the number and location of POIs and pricing of products and services are finalised.

NBN Co considers that it would be preferable if it did not lodge its special access undertaking until the CCS Bill and NBN Companies and Access Arrangements Bills are passed. These Bills contain amendments which affect the way NBN Co would operate and the powers of the ACCC in relation to the special access undertaking.

NBN Co is planning lodgement of the special access undertaking as soon as feasible after the Bills are passed.

The ACCC is subject to a statutory timeframe of six months to accept or reject the special access undertaking, subject to extensions of time and ‘stop clocks’ (for example while it is waiting for information it may request from NBN Co) NBN Co is actively engaging with the ACCC in developing the special access undertaking, including to try and reduce the likelihood of an extended consideration process once the finalised special access undertaking can be lodged.

6 KEY CONCLUSIONS

6.1 Product definition and Pricing

NBN Co has developed a rigorous process to ensure an attractive product set is offered to meet market demand.

NBN Co will also provide Uniform Wholesale National Pricing across fibre, wireless, and satellite technologies.

6.2 Products

The NBN Co product set will be offered as follows:

• A uniform product construct across fibre, wireless and satellite, featuring the same four product components across each access network, and based on the technology-agnostic Ethernet Bitstream framework.
• A 12Mbps downstream and 1Mbps upstream entry-level offer across all three access technologies (i.e. fibre, wireless & satellite), at the same price (network ubiquity).
• An initial fibre product suite with committed speed options of up to 100Mbps and peak speed options of up to 1Gbps (performance certainty and speed).

6.2.1 Product release road-map

The NBN Co product Roadmap & Release Schedule

The Product Release roadmap commences in April 2011 building on core capability and value proposition with the introduction of the high speed broadband and telephony capability. The product set then evolves with 4 additional feature and functionality ‘drops’ creating a strong value proposition for Retail Service Providers to address consumer through to high-end business markets.

Product Drop One: High Speed Broadband & Telephony

Product drop one delivers a core set of NBN Co Fibre Access Service features to the market. It is intended to enable Retail Service Providers to “On-Board” and commence interoperability testing of NBN Co services. The Retail Service Provider will be able to offer high-speed internet packages with access speeds of up to 100 Megabits per second and telephony capability. This will enable a range of migration scenarios from existing broadband and telephony plans.

Product Drop Two: Emerging Entertainment Capability

Product drop two enables Retail Service Providers to build a triple play offering, by adding the capability to distribute their content (eg. television channels) simultaneously to two or more end-users as a single stream. This feature will greatly enhance a Retail Service Provider’s ability to deliver internet protocol television offerings. This multicast technique can achieve significant bandwidth savings when delivering the same content to many end users. NBN Co expect to see retail market innovation based on these features, particularly around the delivery of a “triple play” offering, eg. high speed internet, telephony and television channels for real time viewing.

Product Drop Three: High Speed Business Services

Product drop Three provides incremental functionality to support innovation in the small-to-medium-business market. These additional features are specifically designed to connect multiple business locations, so that they interact seamlessly and provide secure, high speed and reliable access to various business applications including video collaboration and conferencing.

Product Drop Four: High Speed Enterprise Services

Product Drop 4 delivers very high speed up to 1 Gigabit per second for high- end enterprise services. It will also provide incremental business-oriented functionality including point to point links and transparent VLAN. Enhanced Respond and Repair Service Levels in support of mission critical applications are targeted for this release.

Product Drop Five: Enhanced Reliability for Mission Critical Sites

Product Drop 5 delivers the final features to complete the initial NBN Co Fibre Access Service feature set. It includes access diversity for end-users. This feature enables mission-critical sites, such as hospitals, to achieve higher network availability and reduce their risk of outages. Additional operational capabilities will allow Access Seekers to provide greater reliability to their business end-users.

6.3 Uniform National Wholesale Pricing

One of the objectives Government has set for NBN Co. is “uniform national wholesale pricing.” This means that retail service providers (RSPs) will have to pay the same amount, irrespective of where they are based, to deliver their service to households and business throughout Australia.

RSPs currently have to pay for two “products” in order to reach households: (1) “access” through a network – currently primarily copper but in future fibre – and (2) “backhaul” to carry content from the RSP’s headquarters to a “point of interconnect” (PoI) with the access network. NBN Co sees it as part of its mission to make the sum of these two costs low and uniform.

If PoIs are served by only one backhaul provider, that provider can therefore charge very high prices to any RSP seeking access to the set of households served by that particular PoI. This greatly limits competition, and the capacity to innovate at the RSP level.

NBN Co’s recommended solution to this problem is to establish a small number of PoIs located in capital cities. In our business model there are 14. Since there would be competitive backhaul available between any RSP’s headquarters and all of these 14 PoIs, the cost of backhaul would tend to be both modest and uniform.

If the Government elects to mandate a larger number of PoIs than NBN Co plans, it will need to take other steps to achieve low and uniform national wholesale pricing. If that solution does not promote the same intensity of retail competition as the 14-PoI offering, NBN Co projects that its IRR could decline by 50-80 basis points because of slower take-up of broadband and slower introduction of retail services that require higher speeds.

NBN Co plans to charge the same amount for its basic access product – 12/1 Mb/s – across all three technologies: fibre, fixed wireless and satellite.

NBN Co will also charge whole uniform national prices at higher speed tiers across its entire fibre footprint, which will be serving 93% of premises.

6.3.1 Prices

The pricing policy is based on wholesale price levels allowing to achieve comparable or better retail prices than current market for equivalent performance.

NBN Co pricing points will allow any retail provider to offer substantially higher quality products (i.e. much faster speeds), at a highly competitive prices in today’s market.

The pricing structure and pricing levels have been set to achieve a viable internal rate of return (IRR) based on NBN Co’s estimates of take up of different speed tiers and connectivity capacity usage.

Based on take up and speed usage growth assumptions, NBN Co. anticipates being able to reduce real prices for all products and nominal prices for all products, except the basic service offering, while maintaining an internal rate of return above the Government long-term bond rate.

6.3.2 Internal Rate of Return

The project returns, on an unlevered basis, are expected to exceed the long term government bond rate.

This is based on a number of assumptions, the most significant of which are growth in speeds and demand and hence revenue. The stated internal rate of return is also dependant on the completion of the Telstra deal, which has a material impact on construction costs (see discussion below).

The internal rate of return does not take account of any external benefits anticipated from the NBN to the economy, productivity or social outcomes.

The NBN Co business plan and internal rate of return assumes NBN Co’s 14 PoI solution. There may be an impact to NBN Co’s depending on the uniform wholesale price solution adopted by Government. NBN Co’s estimate is that this impact on the internal rate of return could be in the range of 50-80 basis points.

Other remaining Government decision may also have some impact on the internal rate of return.

The internal rate of return is driven by the following revenue considerations.

Stock of premises and new premises

Total premise sizing has been based on G-NAF (Geocoded National Address File) national address index, which uses multiple address sources including Government land records, Australia Post and the Australian Electoral Commission. In conjunction with work carried out by the Department of Broadband, Communications and the Digital Economy, NBN Co has assumed a starting national premise count of 10.9 million at FY10, comprising 9.6 million residential premises and 1.3 million business premises.

The forecast for premise growth has been based on forecasts of new ‘Greenfield’ (undeveloped/raw broadacre land) and ‘Redevelopment / In-fill (net of demolitions / replacement stock) dwelling households and business premises. This is based on the BIS Shrapnel report ‘Overview of the Australian Residential Market’ dated August 2010; National Housing Supply Council 2009 report, ABS data and internal estimates. NBN’s long-term forecasts have been referenced to residential household growth rates, assuming a compound annual growth rate of 1.6 per cent per annum, from Australian Bureau of Statistics forecasts.

Premises growth is driven primarily by the expected growth in residential households, resulting in an average growth of approximately 177,000 new premises each year during the forecast period (to FY2025), or average growth of approximately 166,100 to FY2040.

Speed

Another key determinant of revenue is speed. Over the course of the build the demand for faster speeds will continue to trend upward as they have in the past.

This will satisfy increased demand for new application and devices at premises.

Chart 1 shows the increase in download speeds available over broadband and that speeds available is expected to continue to increase going forward.

Chart 1: Speed Historical Profile and Market Expectations Source: Alcatel Lucent.

[Chart omitted]

NBN Co Speed Projections Exhibit 2 illustrates the projections of average subscriber speed purchased (Mbps) during the forecast period. The market expectations presented in the previous Alcatel-Lucent diagram (Chart 1) have been superimposed over NBN Co’s two alternate speed projections (Option A1 and A2). This presentation illustrates NBN’s conservative expectation that the growth in demand for speeds will be considerably lower than the extrapolation of increasing speeds implied by the history of internet access technologies.

Exhibit 2 Download Speed Historical Profile and Projections1 Source: ABS, 8153.0 Internet Activity Australia for period pre – FY10, NBN Co Option A1 & A2 Projections, Approximation of Alcatel’s Market Expectations (per Exhibit 8.20) 1 Internet Activity, Australia, Jun 2010 http://www.abs.gov.au/ausstats/abs@.nsf/mf/8153.0/

[Chart omitted]

Data usage

A key driver of revenue is that there is growth in speed leads to a new applications and therefore increased data usage over time.

Chart 3 shows the dramatic growth in data usage within Australia over the past decade.

Chart 3: Australian Data Use, Historical Profile

[Chart omitted]

Chart 4 shows a stylized progression in intensity of broadband use commencing with simple websearching tasks, requiring low broadband speeds, and progressing to include increased access to features like smartphones, gaming and television delivered over broadband.

The number of GB/month in June 2010 is an average of fixed downloads (9.2 GB/month) and wireless downloads (1.2 GB/month).

Chart 4: Trends in Broadband Use Source: NBN Co, adapted from FCC, OBI Technical Paper No4 and September Meeting Commission 2009, ITIF, CSMG

[Chart omitted]

Projections of data usage used by NBN Co have been built from the ground up and factor in the relatively strong relationship between increasing access speeds and usage The starting point has been to take the historic usage level as reported by the ABS (9GB/mth for fixed broadband) in FY2009 allowing for uploads and downloads and the long-term growth trends seen in the Australian and international markets (Cisco VNI forecasts). This underlying growth has been adjusted to reflect the large step change in speeds available to customers coming onto NBN fibre, and an adjustment has been factored in over approximately ten years to reflect the gradual development and adoption of applications that can fully utilise the increased bandwidth.

A conservative approach has been taken with regard to long-term data usage growth, factoring in considerations including saturation of usage, slowing growth in online hours and increasing delivery of content on multicast applications. This sees growth fall to ~8 per cent p.a. from FY2030, well below the baseline increase in access speeds forecast.

NBN Co has also referenced usage projections against a number of independent sources:

• Historic ABS data, showing a 36 per cent per annum compound average growth rate from 2000 – 2010.

• Cisco international forecasts for internet traffic to increase at a 34 per cent compound average growth rate from 2009 – 2014.

6.4 Capex

At the end of the contribution and deployment period, the total capital expenditure (capex) is estimated by NBN Co to be $35.7 billion.

This is lower than originally forecasted as a consequence of the pending deal with Telstra. This deal reduces the overall capex due to efficiencies as a result of the re-use of infrastructure and also the use of longer term leases.

The Business Model and Corporate Plan are predicated on the assumption that a deal is finalised and approved between NBN Co and Telstra in accordance with the Financial Heads of Agreement in relation to the following:

• Progressive disconnection of copper services and decommissioning of Telstra’s fixed line copper and HFC networks as the NBN Co fibre network is rolled out;
• Utilisation of existing Telstra exchange space;
• Utilisation of a significant portion of Telstra’s existing ducts and conduits; and
• Access to dark fibre and managed services for backhaul.

The deal with Telstra represents a marked improvement to the Business Model and Corporate Plan relative to NBN Co’s No Deal scenario and substantially mitigates a number risks otherwise present in the build (notably in relation to demand forecasts and the cost and speed of deploying the fibre network).

The NBN Co detailed cost modelling estimates that the NBN can be built for a total Construction Capital Expenditure of $34.4 billion to achieve targets of 8.3 million premises connected and 12 million premises passed by fibre or covered by fixed wireless or satellite by the end of full deployment date in a deal case scenario.

When adding the Replacement Capex (representing the forecast Capex reserved to maintain the deployed network) for a total of $1.3 billion, (total Construction and Replacement Capex amount to $35.7 billion).

The Agreement between NBN Co and Telstra, worth an expected value of $9 billion, in net present value terms(NPV) provides for: The reuse of suitable Telstra infrastructure, including pits, ducts, conduits, backhaul fibre and space in Telstra exchanges, by NBN Co as it starts to rollout its new network - avoiding unnecessary infrastructure duplication.

As a result, NBN Co’s forecast of the estimated capex cost to build the NBN in a deal scenario is $35.7 billion compared to $37.4 billion in a no deal scenario.

The progressive migration of customers from Telstra's copper and pay-TV cable networks to the new wholesale-only fibre network to be built and operated by NBN Co.

Under a deal scenario, total capital expenditure per premise is lower than in a no-deal scenario. This is due to the upfront savings achieved through the increased use of Telstra’s existing infrastructure.

As mentioned above, the Capital Expenditure for Connections is higher in a Deal Scenario than in a No-Deal Scenario due to the increased number of customers being connected earlier in a Deal Scenario, which translates into both a timing impact (acceleration of customers connections) and a structural impact (implying more initial build Capex to Connect, as well as active equipment, together with more replacement Capex).

As a trade-off, Opex costs are higher in a deal scenario in comparison to no deal, due to the higher use of Telstra’s infrastructure (ducts, transit backhaul links, exchanges) as well as the acceleration of customer take-up (connections) generated by the deal.

Brownfields in the Build Capex Breakdown

For the purposes of the financial model a distinction has been made between Brownfields and Greenfields premises within the FTTP footprint, due to their different cost characteristics.

FTTP Brownfields premises are considered to be the 10.1 million existing premises that are to be covered by the FTTP network at the start of the volume rollout. Greenfields premises are all those premises not currently included in the 10.9 million total premises as at June 2010.

Targets & Projections	Full Deployment Key Metrics (Rounded) (Nominal Dollars)
Capex	$35.7 billion total Capex (of which $1.3 billion for Replacement and Maintenance and $9.9 billion for fibre connections) by June 2020.
Telstra Agreements	$13.8 billion decommissioning and infrastructure payments by June 2020

6.5 Opex

As discussed above the Opex for the NBN is impacted upon by the Telstra deal Specifically Opex costs are higher in the deal scenario in comparison to No Deal, due to the higher use of Telstra’s infrastructure as well as the acceleration of customer take-up.

The main drivers of Opex costs are described below:

• up-front migration incentives payable to Brownfield premises which connect during the main construction period. Under a Deal scenario, the cost of an upfront migration incentive per Brownfield customer is half that of the No Deal scenario.
• Decommissioning payments payable to Telstra at the time of disconnection of subscribers as an incentive for the take up to subscribers to NBN infrastructure. Decommissioning payments on occur under the Deal scenario.
• The lease of key infrastructure including aerial fibre, ducts, backhaul, wireless operating expenses and satellite operation expenses.

6.6 Funding

NBN Co’s funding requirement is driven by the Company’s earnings before interest, taxes, depreciation and amortisation (EBITDA) and Capex profiles, including working capital.

6.7 Equity requirement

The equity requirement from Government based on our current plan is $27.1bn.

This is based on advice from Goldman Sachs that NBN Co should be able to arrange debt funding.

Irrespective of what amounts NBN Co decides to borrow, total funding requirements will begin to decline in 2021 (approximately when the rollout is complete), because at that point NBN Co will be generating cash from its operations in excess of any capital expenditure requirements.

From 2020 to 2022, NBN Co. will be replacing equity funding with debt funding until its reaches a steady-state debt:equity ratio of 1:1.

NBN Co. expects to pay cash dividends, beginning in 2020, which in the aggregate would repay the government’s entire investment by 2034, even if no shares of NBN Co were sold to private investors. Since such dividends would be paid out of earnings, NBN Co. would continue to be appropriately capitalized and capable of being floated in the public market whenever the government chose to do so.

6.8 Cost of Capital

The corporate plan assumes that NBN Co’s cost of funds will decline as its credit ratings improve as stable revenues begin to be generated.

The risk premium is expected to decline by more than 200 basis points over the course of the build.

NBN Co has undertaken a detailed analysis of the cost of capital through the Weighted Average Cost of Capital (WACC) methodology. The WACC value has been considered in the context of the changing nature of NBN Co over time, using 4 lifecycle periods which reflect different levels of risks and volatility.

The cycles are as follows:

• ‘Proof-of-Concept’ period, which encompasses the Corporate Plan timeline - the cost of capital would not be based on relevant comparables NBN would have the nature of an infrastructure project and an element of Australian Government broader policy in the telecoms industry;
• ‘Construction’ period, benchmarks linked to the construction industry are used to derive a WACC;
• Transition / Market Development’ period as risk tapers; and
• ‘Established Network Operations’ period, is estimated reflecting the established infrastructure nature of NBN Co by that stage (while keeping a conservative risk premium compared to regulated assets such as water and gas utilities).

Based on these parameters, a capital weighted WACC has been derived at 10 per cent-11 per cent over the 30-year period. This has been factored into the business model.

NBN Co’s weighted average cost of capital over time will fall as shown in Chart 5.

Chart 5: Movement in weighted average cost of capital over time

[Chart omitted.]

7 RISK MANAGEMENT

NBN Co is seeking to develop a sound system of risk oversight, management and internal control and the associated culture, processes and structures to support achievement of its business objectives. Embedding a risk culture requires time and attention, as disciplines take time to form business as usual activities.

NBN Co has established an enterprise-wide risk management system to facilitate the identification of significant business risks and implementation of appropriate risk mitigation or treatment plans and monitoring processes. The system is built upon the premise that all employees have responsibility for risk management in their job areas.

The approach adopted by NBN Co is consistent with the international risk management standard, Australia/New Zealand Standard ISO 31000:2009. NBN Co’s Risk Management Policy details the way in which the Company establishes the risk context, identifies, assesses, analyses, evaluates and treats risk to effectively manage its business, assign roles and responsibilities for risk management, and establish a risk register and reporting framework to facilitate the process and meet reporting obligations.

Risk profiles will be defined and managed for each of NBN Co’s business functions and major activities. The aggregation of these profiles forms the NBN Co Group Risk profile and also forms the basis for Management and Board reporting of risks and associated management processes. Risk reporting is subject to legal professional privilege wherever appropriate. Risks, the risk mitigations in place, and treatment plans are reported quarterly to the Board under the following categories:

• Safety and Environment;
• Demand and Revenue (Product and Competition);
• Technology;
• Execution and Delivery;
• Security (Physical, Networks, Information Technology);
• Policy and Regulatory;
• Resourcing - Suppliers;
• Resourcing – People and Skills; and
• Financial.

The Risk Management Policy includes a consequence scale to assess the impact of a risk on NBN Co’s reputation Risk management is also being integrated with NBN Co’s Program processes, with weekly recording and reporting of issues and risks that also form part of the reporting above.

NBN Co’s operating environment is dynamic, and subject to many external factors, many of which are outside of NBN Co’s control. The risk management system will play an important role in identifying and responding to risks as the operating environment changes in both the short and longer terms. Finance provides policy, strategies, tools, guidance and a cross-company reporting capability to manage risk, while additional risk specialists are distributed throughout the organisation with responsibility for addressing specific risk areas.

Whilst the execution of the risk management system aims to identify risks before they occur, for a number of reasons this is not always possible. As such, NBN Co also places an equal emphasis on risk readiness, business resilience and fostering a preparedness to respond to risk events; with the risk reporting and communication disciplines being established facilitate this. The regular risk reporting processes that have been established facilitate appropriate oversight and ownership of risks, and also serve as a mechanism for regular updating of risk registers and considering the completeness of risks identified and mitigation plans in place.

Risk management is seen as an ongoing process as part of all business activities and not a cyclical event. NBN Co seeks to foster a risk aware culture, open to risk identification and treatment of risk. This includes the promotion of education and awareness of the risk management system and key risk management principles amongst its staff.

The Risk Management Policy that establishes and underpins the risk management system will be reviewed at least annually and updated as required to reflect NBN Co’s needs. This will ensure the risk management system remains fit-for-purpose as NBN Co’s primary activities move through planning and design, to construction and commercial operation.

Wholesale and Retail Business Models

[Diagram omitted.]

[From Premise to Point of Interconnect.]

Ubiquitous Broadband Services Reducing Carbon Emissions

In "Environmental Load Reduction Effects of Ubiquitous Broadband Services" (2007) NTT researchers compared the CO₂ emissions from purchasing music in a physical store with downloading it using a fibre to the home broadband network and a wireless network. They concluded that the most energy efficient is the wireless network (31 kg CO₂e/year), followed by fibre to the home (108 kg CO₂e/year) and lastly conventional physical delivery (201 kg CO₂e/year). I get my Green IT students to examine this analysis.

This is relevant to the discussion of the NBN in Australia, which is a fibre to the home system. A wider analysis might show better savings for the fibre system, as there are energy savings tasks which could be performed with it, such as high resolution video replacing travel, which are not possible using lower speed wireless.

Techniques could also be used to reduce the power consumption of the NBN. The MaxLinear MxL261 digital cable front end chip, for example, has a low power mode which can be used when less bandwidth is required and to save battery power.

Fibre-to-the-premises in greenfield estates

The Department of Broadband, Communications and the Digital Economy issued a "National Broadband Network: Fibre-to-the-premises in greenfield estates - Consultation paper" 29 May 2009. The paper is available as a 23 page, 482 Kbyte PDF document. Submissions on the paper can be made until 12 June 2009.

One point the paper makes is that battery backup will need to be provided for the equipment on the customer premises. The paper suggests that maintenance for this is likely to be the consumer's responsibility by analogy with fire alarms and smoke detectors. However, there are many documented cases of deaths due to not correctly maintained fire alarms and smoke detectors. It may not be good public policy to apply this to the NBN knowing that the system is then likely to fail in an emergency, such as a bushfire.

Unfortunately the Department has made the paper difficult to find and obtain by placing it behind a registration process which requires the reader to enter their name, email address and organisation name. There appears to be no good reason for this process, which appears to be contrary to government policy for access to information. Here is an excerpt from the paper, minus the diagrams and some administrative details of the consultation process:

Contents

• Purpose of this paper
• Related processes
• The goal: fibre in greenfield estates
• Policy rationale
• Recent Australian developments
• The costs and benefits of providing telecommunications in greenfield estates
• Delivering FTTP technology in greenfield developments
• Role of government
• Other roles and responsibilities
• Possible legislation
• Definitions
• Greenfield estates
• Multi‑dwelling units and office blocks
• Fibre‑to‑the‑premises
• Exemptions
• Commencement date
• Competition and regulatory framework
• Competition to service greenfield estates
• Competition at the services layer: access and equivalence
• Open access arrangements
• Equivalence
• Obligations to supply retail services
• Retail pricing
• Other safeguards and requirements
• Reporting
• Enforcement
• Next steps
• Submission process
• Publication of submissions
• Confidential information
• Privacy
• Lobbyists

Purpose of this paper

On 7 April 2009 the Australian Government announced it will establish a new company that will invest up to $43 billion over eight years to build and operate a National Broadband Network (NBN) delivering superfast broadband to Australian homes and workplaces.

The Australian Government is committed to implementing the National Broadband Network initiative as quickly as practicable. While some parts of the initiative will take time to put in place, due to their magnitude and complexity, there are some immediate steps that the Australian Government can undertake quickly and that will deliver significant benefits.

One of the immediate steps the Australian Government announced was that fibre‑to‑the‑premises (FTTP) infrastructure would be required in greenfield estates that receive planning approval after 1 July 2010.

The Australian Government is undertaking a targeted consultation process with key stakeholders on how to implement this initiative.

This paper has been prepared to assist with this process by setting out possible approaches and highlighting particular areas where the views of stakeholders are being sought. The Australian Government recognises this is a complex area and views on the best approach may differ. The options put forward in this paper, therefore, should be seen as a starting point for discussion, and on which feedback is welcome. A number of questions have been posed on a wide range of issues, but the Australian Government is also interested in any additional issues respondents may wish to raise in relation to this initiative.

Written feedback on this paper is invited by 5pm (AEST), 12 June 2009.

Related processes

The Australian Government’s greenfields policy forms part of the NBN initiative announced on 7 April 2009. Another key element of the NBN initiative is to reform the existing telecommunications competition and consumer regulatory frameworks in the transition to the NBN.

The reform options that the Australian Government is considering are canvassed in the regulatory discussion paper, National Broadband Network: Regulatory Reform for 21st Century Broadband1 and submissions are due by 3 June 2009.

Any changes to the regulatory framework resulting from this process will take into account the Australian Government’s new greenfield fibre policy. On the other hand, where relevant, changes resulting from that regulatory review process may apply to service providers operating FTTP networks in greenfield estates.

The Australian Government has indicated it will make final decisions on the operating arrangements, detailed network design and private sector investment arrangements for the company established to roll‑out and operate the NBN following consideration of an Implementation Study to be completed in early 2010. The Implementation Study is also relevant to the implementation of the greenfields policy.

As part of its announcement of an enhanced NBN on 7 April 2009, and as set out in the discussion paper, National Broadband Network: Regulatory Reform for 21st Century Broadband, the Australian Government will require the installation of fibre optic infrastructure to the home and workplace in greenfield estates across Australia that receive planning approval from 1 July 2010.

FTTP networks (also sometimes referred to as fibre‑to‑the‑home) are those which connect customers’ premises to a point of interconnection in the wider telecommunications network using optical fibre (see Figure 1).

Figure 1 An illustrative example of FTTP network architecture.

FTTP networks are capable of providing significantly faster broadband speeds and a broader range of services to end‑users than copper‑based networks.2 Faster broadband speeds will mean better access to the services and applications people use today and access to a greater range of new services in the future.3

It will be important that FTTP networks are configured in such a way that they can be upgraded to meet future requirements, facilitate any‑to‑any connectivity (i.e. the ability to communicate with other people connected to the network and other networks) and support multiple retail competitors.

Policy rationale

Given the superior properties of FTTP networks and the range of services they can support, it would be counter‑productive to have homes and other premises built in new greenfield developments with the latest building technology but connected by antiquated copper wires. Equally it does not make sense to roll‑out the NBN while allowing new premises in greenfield estates to be connected with old technology.

Allowing copper‑based networks to be installed in these estates would also lead to higher costs in the long run if these estates need to be ‘retro‑fitted’ to deploy FTTP connections in the future. Moreover, there is evidence that consumers attribute a significant positive value to the availability of FTTP infrastructure in a new estate which is capitalised into the value of the property.

The installation of FTTP in greenfield estates will ensure that today’s greenfield estates are not tomorrow’s broadband blackspots. There has been community concern, and Ministerial correspondence, about broadband blackspots over an extended period of time. There has also been concern raised about the lack of broadband infrastructure and competition in some developments. Ensuring that appropriate broadband infrastructure is in place will prevent this in the future.

The rationale underpinning the Australian Government’s greenfields policy has been welcomed by a range of stakeholders including the Australian Telecommunications Users’ Group and the Australian Local Government Association. The Online and Communications Council has also endorsed a strategy of ‘promoting consistent and cohesive planning guidelines for state and local government authorities, and effective infrastructure implementation, that facilitates the efficient deployment of broadband.’4 The Australian Government’s FTTP in greenfields policy aims to support this strategy.

Recent Australian developments

In parts of Australia the private sector is already moving to install FTTP networks in new greenfield estates.

For example, the Aurora estate in Victoria, the Fernbrooke estate in Queensland, the Marina Hindmarsh Island estate in South Australia and the suburb of Forde in the ACT are developments that include FTTP networks. In each example the networks are being installed by different carriers.

Overall, the available information suggests that FTTP is currently being deployed in around 120 greenfield estates in Australia. These deployments are expected to connect approximately 150 000 homes. An estimated 7500 homes were connected at December 2008. There are more than 10 operators now installing FTTP in greenfield estates and a number of service providers using this infrastructure to offer services at the retail level.

The installation of FTTP is taking place in a competitive context, with developers typically contracting out the provision of infrastructure and services in developments. In areas where the FTTP infrastructure provider does not provide retail services, arrangements are increasingly being put in place to ensure partnerships exist with retail providers to deliver services to consumers.

Additionally, local government and planning agencies are encouraging developers to install FTTP infrastructure and services in new estates through various means. For example:

• the ACT Land Development Agency held a tender process for the construction of broadband infrastructure in the new suburbs of Forde and Franklin

• under its planning powers the City of Whittlesea requires fibre optic conduit to be installed in new estates, and

• the Sunshine Coast Regional Council has developed draft guidelines to assist developers with the roll‑out of fibre, including draft pit and conduit specifications, a draft smart building guideline and detailed information on what products are needed to provide FTTP.

The Australian Government is keen to build on these trends and encourage their continuation in new greenfield estates.

As noted, some local councils already have plans in relation to the installation of FTTP in greenfield estates. Others may wish to introduce such requirements before the Australian Government’s policy takes effect on 1 July 2010. The Australian Government would not wish to discourage such developments, and will work with all levels of government to promote consistency of requirements around installation of FTTP in greenfield estates.

The costs and benefits of providing telecommunications in greenfield estates

The cost of providing terrestrial-based telecommunications in greenfield estates today depends on the network technology deployed. One option is to install a legacy copper‑based network which can simply provide telephony services or can also provide fixed broadband services. Alternatively, a more sophisticated FTTP network can be installed.

Installing any telecommunications infrastructure in a greenfield estate involves costs that must be recovered. Currently these costs are typically shared between the developer, the carrier and the builder but ultimately they are passed through to consumers, for example, through land prices, building costs, up‑front installation costs or monthly charges. This needs to be kept in mind when considering the relative costs of different telecommunications solutions in greenfield estates.

The installation of copper and FTTP networks in greenfield estates involves many similar cost components. For example, both types of networks typically require backhaul capacity, trenching, pit and pipe infrastructure and distribution cabling. These elements are comparable in cost and make up a large proportion of the total costs of installing these networks.

There are, however, different elements required for a copper‑based network compared to a FTTP network.5 While elements can vary, when a like‑for‑like comparison is made, available estimates indicate that the cost per premises of a FTTP connection is higher than the cost per premises for a broadband‑capable copper‑based connection.

However, the cost difference is relatively modest compared to the total value of the house, the life of the investment and when considering the increased functionality of future‑proofed FTTP networks. The available evidence suggests the cost differential is in the order of $1500 per premises. At an estimated cost of $2500 per premises, the installation of FTTP would represent less than one percent of the cost of a $350 000 house and land package. The total cost per premises is comparable to, or even lower than, the cost of other utilities installed in greenfield estates.6

Often the modest size of this cost difference between copper and FTTP appears to be obscured by the different ways in which costs are currently recovered. While the costs of providing other utilities in greenfields are generally met by the developer (at least in some states), historically Telstra has provided key elements of the copper network and recovered the cost through its connection/installation and ongoing service charges, while developers cover other costs such as trenching.7

By contrast, when FTTP is installed, the provider typically seeks to recover a greater proportion of its installation costs up-front from the developer. This has created the perception that the cost difference to the end user between FTTP and copper is greater than is actually the case and this may have distorted developers’ decisions about what telecommunications technology to deploy.

While there is a greater cost associated with the installation of FTTP compared to copper, the available evidence suggests this is more than outweighed by the superior benefits of FTTP, particularly over the long term. This is reflected in the impact of FTTP on property values. The available information, including on international experience, suggests that consumers in new greenfield estates place a high value on the availability of FTTP and that this translates into higher capitalised house and land values compared to if legacy communications infrastructure is made available.

A small survey was undertaken by the Gungahlin Community Council in Canberra in August 2006 by Kevin Cox in association with Robin Eckermann. The survey asked respondents to indicate how they would react if a developer who had planned FTTP advised prospective buyers he had decided not to proceed with FTTP, but was willing to offer a discount on the house and land package. More than 60 per cent of respondents indicated no offer would be satisfactory; instead they would buy elsewhere. Of the remainder, 80 per cent indicated they would not proceed without compensation of at least $5000.

This is broadly consistent with evidence from developers in the US that indicates that consumers place significant value on having access to services delivered over FTTP infrastructure in greenfield estates. For example, a Fibre‑to‑the‑Home Council survey of home buyers and home developers in the US estimated that a direct fibre connection adds an average of more than US$5000 to the value of a home.8

It is also consistent with the increasing interest in FTTP from developers and carriers around Australia and overseas which indicates they see value in the deployment of FTTP technology in new estates, and that this is being advertised as a selling point.

For example, Telstra has stated:

‘There’s a real appetite in new estates for fibre, and the developers—quite rightly—see fibre as being a future‑proof technology. So they can use that to add value to their development, and they’re keen to put it in there.’9

The website for the Lochiel Park estate in South Australia states:

‘Fibre optic cabling throughout Lochiel Park will deliver high speed broadband to every home. This will enable video on demand, telephony, VoIP or voice over internet protocol, a community portal and high speed internet services. New purchasers will be offered an initial start‑up package.’10

Delivering FTTP technology in greenfield developments

The model which is adopted for the implementation of the fibre in greenfields initiative will be applied on a national basis. Therefore, greenfield estates in Tasmania will be subject to the same regime as the rest of the country, notwithstanding the early roll‑out of the NBN in that state.

Broadly, there are two potential models to ensure that FTTP infrastructure is installed in new greenfield estates that receive planning approval from 1 July 2010:

1. the Australian Government could legislate to directly require developers to ensure pit, pipe and FTTP infrastructure and services are available to consumers, or

2. the Australian Government could work with state, territory and local governments to require the installation of FTTP and could support this with legislation to prohibit the installation of non-fibre networks in greenfield estates.

Model 1 would have the benefit of directly requiring FTTP networks to be installed. However, it may not always be clear on whom the obligations should be placed, for example in a development that involves a number of developers or other entities at different stages of the process, or where local government or state planning bodies themselves may be involved in the development process. For this model to work effectively it will be necessary to identify particular stages at which FTTP must be installed. This may lead to a situation where developers are prevented from selling properties that do not have an FTTP connection.

While model 2 does not directly mandate the installation of FTTP, it recognises and leverages off the role that local governments and planning authorities already play in provision of utilities in greenfield developments. This may be appropriate as requiring FTTP in greenfields is essentially a planning requirement and therefore most appropriately dealt with under planning laws. Developers are most likely to be familiar with these laws and there is immediate contact between developers and local government. The Commonwealth could support this with legislation to prohibit the installation of non-fibre networks in greenfield estates.

Considering these options, the Australian Government considers that model 1 may be unduly cumbersome and therefore model 2 is the suggested approach. However, the Australian Government is seeking feedback on this issue.

Questions

1.What are the relative merits of the models outlined? Which is the preferable approach? Why?

Role of government

If model 2 is adopted, the Australian Government would work with state, territory and local governments to include requirements to facilitate the deployment of optical fibre in greenfield estates. Even if model 1 were adopted there may still be an important role for state, territory and local governments in providing clarity to developers and other stakeholders given their close engagement with them.

To assist with the implementation of this national initiative, the Australian Government could work with state, territory and local governments on the development of planning laws, by‑laws and planning guidelines. The Australian Government could undertake a range of measures to support the implementation of such requirements, such as:

• assisting with the development of model laws, templates for planning requirements and network and in‑building cabling specifications for use by planning authorities

• facilitating the development of national guidelines for network design, and

• developing educational tools for relevant industry participants, builders and consumers on the new requirements.

In addition to assisting local councils and planning authorities, the development of such tools could help provide consistent requirements between local government areas, reducing compliance costs for developers who work across council boundaries.

State and territory planning laws could require developers and builders, as appropriate, to ensure:

• pit and pipe infrastructure is installed that would be appropriate for the deployment of FTTP and which, potentially, would allow competitive infrastructure provision in the future (for example sufficient space for more than one cable)

• appropriate FTTP infrastructure is installed ready for connection to new premises

• appropriate cabling is installed within new premises to allow practical use of FTTP capability

• open access wholesale services are available on a non‑discriminatory basis, and

• retail services are available from at least one retail provider.

Large greenfield estates often include commercial centres, schools, medical clinics and other community facilities which may need higher grade services than residential customers. The Australian Government considers e‑health and e‑education will be important users of superfast broadband. Planning requirements may also need to ensure the FTTP requirements of such users are factored into developers’ and service providers’ planning.

The provision of telecommunications services is generally outside the core business of developers. As such the Australian Government envisages, as is increasingly the case already, developers contracting out the provision of these services on a competitive basis to relevant commercial firms. A key issue for developers would be to select arrangements that provide for the ongoing provision of services. In this context, as noted, the Australian Government expects the increasing development of integrated build and operate packages for developers by telecommunications service providers.

Questions

2.Is any action required by the Australian Government to facilitate local councils and planning authorities requiring the installation of FTTP facilities?

3.Would the preparation of model laws, templates and/or national specifications or guidelines assist local councils and planning authorities with implementation?

4.Would the development of educational tools for industry assist? If so, what?

5.Would the introduction of a certification system for the installation and performance of FTTP networks be beneficial?

6.To what extent is a nationally co‑ordinated approach preferable to one where state and territory or local governments take the lead?

Other roles and responsibilities

Figure 2 summarises the types of obligations that could apply to FTTP in greenfield estates, on whom they could fall and the source of these obligations.

Output	Party obliged to comply	Source of obligation
Trenching	Developer	Local government planning rules
Pit and pipe infrastructure	Developer	Local government planning rules
FTTP infrastructure	Developer	Local government planning rules
In‑building cabling	Builder	Local government planning rules or building codes
Wholesale services	Carrier	Developer’s contract
Retail services	Carriage service provider	Developer’s contract

Figure 2 Summary of possible roles and responsibilities.

Entities responsible for the FTTP infrastructure used for the supply of services to the public would be carriers. As such they would also be subject to carrier requirements under telecommunications and trade practices law. Entities providing services using their own or other infrastructure would be carriage service providers and, again, they would be subject to the applicable regulatory arrangements under telecommunications and trade practices law.

The Australian Government recognises that there may be multiple developers involved at different stages of a development and that builders may be responsible for the final communications connections into buildings. Careful consideration will need to be given to the nature of the obligations throughout the development process.

Generally, it is expected that FTTP infrastructure to the property boundary would be installed at the same stage of development as other utility infrastructure. Connections to premises would then be made at the time the building is constructed just as other utilities are connected. Given the importance of communications in today’s world, it makes sense for premises to be communications‑ready at completion. Such an approach would also avoid the expense and inconvenience of retro‑fitting at a later date. The Australian Government understands connections in greenfields are typically done by the FTTP infrastructure provider or its contractor but views on whether this could be made a contestable market would be of interest.

With FTTP, battery backup systems need to be provided for lifeline services in the event of power failure. It would need to be made clear who is responsible for maintaining and testing batteries. This responsibility is likely to rest with consumers, the same way that it does with other safety equipment, such as fire alarms and smoke detectors.

Questions

7.If the Australian Government were to place obligations on developers and builders, at what stage of development should obligations be placed and on whom?

8.Is there scope for the provision of lead-ins in greenfields to be made contestable?

Possible legislation

If model 2 were adopted, it could involve the amendment of the Telecommunications Act 1997 (Telecommunications Act) to prohibit the installation of line links11 to premises in greenfield estates unless those links are fibre optic and have specified characteristics. Specific characteristics of the fibre links could be set out in regulations. This is an area where the conclusions of the Implementation Study may be important. Requirements of this kind could be replicated, if appropriate, in state, territory and local government planning documents of the type discussed above to provide guidance for developers.

Definitions

A number of definitions will be important to the operation of any possible greenfields legislation.

Greenfield estates

The Australian Government considers that FTTP networks should be installed in greenfield estates regardless of whether the development is zoned residential, business, commercial, industrial or mixed use. The requirement would also include major urban in‑fill projects.

That said, an open question for consideration is how a ‘greenfield estate’ should be defined in this context. Current thinking is that there should be a minimum number of lots for the FTTP requirement to apply, but that this number should be as low as possible to avoid gaps in FTTP coverage. The Australian Government is seeking feedback on this issue.

In terms of the boundaries of a greenfield estate, the Australian Government envisages these would be as set out in the planning approval concerned.

The Australian Government considers that in the case of staged developments or those involving multiple developers developing smaller parcels, the number of lots or premises would be determined based on the total across all stages of the development. However, it acknowledges that some developments may be rolled out over an extended period and that this would need to be recognised in greenfields FTTP arrangements. A holistic view of such developments could be taken through appropriate strategic planning documents of local government or planning authorities.

As noted the Australian Government envisages that the greenfields FTTP requirements would apply across Australia, subject to the definition of what is a greenfield estate. Such an approach could be subject to an exemption power to deal with exceptional cases or cases where the installation of FTTP is not practical.

Questions

9.What is the appropriate number of lots or premises required for a development to qualify as a greenfield development requiring FTTP? What other issues or factors should inform the definition?

10.What mechanisms could be used to achieve a consistent approach across large developments involving multiple developers and/or over an extended period of time? For example, what provision should be made in relation to estates in which lots are released over a number of years?

Multi‑dwelling units and office blocks

It is envisaged that multi‑dwelling units, such as flats or office blocks, where the number of units or offices meets or exceeds the number of premises that would constitute an eligible greenfield estate would also require the installation of FTTP. Alternatively, given the potential cost and difficulty involved in retro-fitting wiring in multi‑dwelling units, a lower threshold could be set.

The appropriate point for termination of the optical fibre would depend on the size of the development. However, in all cases in‑building distribution that allows all units to receive services of at least 100 Mbps would be required.

Questions

11.Are there any special requirements for multi‑dwelling units or office blocks?

12.Should the threshold for the connection of FTTP for new multi-dwelling units be lower than other estates or should all new multi-dwelling units be connected with FTTP? What threshold, if any, should apply?

Fibre‑to‑the‑premises

The Australian Government considers FTTP to mean infrastructure that provides for the connection of single dwellings or individual premises within multi‑dwelling units with fibre optic cabling from the optical fibre distribution centre to an optical network terminator (ONT) located at the customers’ premises (or similar equipment in multi‑dwelling units). Legislation would be able to provide for characteristics of FTTP networks in greenfields to be specified more fully in regulations.

The network should also include backhaul to an appropriate point of interconnection to the wider telecommunications network to provide for any‑to‑any connectivity and to support effective retail level competition. Depending on the development’s location, such points of interconnection may be a considerable distance or there may be a lack of competitive alternatives. The Australian Government has recognised the importance of backhaul in the provision of high quality FTTP services. The Implementation Study will consider the backhaul needs of the NBN company. The NBN initiative also includes a program to provide funding for existing backbone blackspots.

FTTP networks in greenfield estates should be capable of providing up to 100 Mbps over each connection and be upgradeable and scalable. A clear upgrade path to faster speeds is considered desirable. It is also expected that business grade services would be available to commercial and other relevant premises within estates.

The Australian Government is disposed to allowing providers flexibility as to how these outcomes are achieved. At the same time, however, it wants to ensure FTTP roll‑outs are future proof and interoperable and have a high degree of consistency across Australia. As noted above, the Australian Government could look at introducing templates, specifications or guidelines to this end.

The Implementation Study will also be important in establishing details of this definition.

Questions

13.What specified characteristics should be considered for the purposes of defining FTTP for greenfields?

14.Are there particular issues in relation to backhaul between the greenfield estate and point of interconnection to a national network that need to be considered?

Exemptions

The Australian Government acknowledges that there may be certain circumstances where it may be necessary to provide exemptions to the requirements for FTTP networks in greenfield estates. It is envisaged that the proposed arrangements could be constructed to give States or Local Councils some discretion in their planning approval process concerning the classification of developments as greenfield estates and the type of line links that can be installed. The Australian Government recognises that any exemptions may be more applicable in areas outside the fibre footprint of the NBN.

Questions

15.What exemption arrangements, if any, would be appropriate and how should they be administered?

16.Are there any particular circumstances under which developments should be exempt from the Australian Government’s requirements for FTTP in greenfields (for example, for large area subdivisions in rural and remote Australia)?

Commencement date

The Australian Government has indicated that the requirement to install FTTP in greenfield estates will apply to developments which receive planning approval on or after 1 July 2010.

In the case of developments that receive approval before 1 July 2010, there may be delays between the approval and the construction and sale of buildings. Therefore transitional measures may be appropriate.

Developments approved prior to 1 July 2010 but in which construction has not commenced or for which the provision of telecommunications infrastructure has not been contracted by 1 July 2010 could also be prohibited from installing networks that are not fibre optic except in exceptional circumstances.

Similarly any stages of multi‑stage developments approved prior to 1 July 2010 but in which construction has not yet commenced or in which the provision of telecommunications services has not yet been contracted could also be prohibited from installing networks that are not fibre optic except in exceptional circumstances.

Questions

17.Are there any factors that the Australian Government should be aware of in relation to the commencement of FTTP requirements?

18.Under what circumstances, if any, should transitional arrangements allow for the installation of copper–based infrastructure?

19.Should the FTTP requirement apply to developments approved before 1 July 2010 but for which telecommunications infrastructure has not yet been contracted or provided? What transitional arrangements may be appropriate in these circumstances?

Competition and regulatory framework

The Australian Government wants to continue to encourage trends towards private investment in FTTP in greenfield estates. Therefore, it is not the Australian Government’s intention that the NBN overbuild FTTP deployments in greenfield estates where these estates enjoy outcomes comparable to those to be delivered by the NBN. The Implementation Study will examine how the Australian Government can work with existing FTTP providers in greenfields.

In the longer term it might well be that the NBN company would compete with other providers for the contract to supply FTTP infrastructure and wholesale services in greenfield estates. This however, would be a matter for the NBN company.

Questions

20.Is the Australian Government’s intention that the NBN company not overbuild existing FTTP developments in greenfield estates appropriate?

21.Are there any specific issues that should be considered in relation to the role of the NBN company in greenfield estates?

More generally however, the Australian Government wants to continue to encourage the competitive supply of FTTP facilities and services in greenfield estates. Such competition can occur at a number of levels.

Competition to service greenfield estates

Competition can occur in relation to the installation of FTTP infrastructure in a greenfield estate. For example, developers can put to tender, or contract, for the provision of FTTP infrastructure in their developments to find the best solution for their needs. This is increasingly common. The Australian Government sees benefits in this continuing and will seek to encourage these developments.

Such competition may be facilitated by councils requiring the developers to install appropriate passive infrastructure such as the pit and pipe (i.e. conduit) networks during the construction of the estate. This is an approach that Whittlesea City Council has employed.12

Longer term infrastructure-based competition may also be fostered if such passive infrastructure is designed to support multiple providers of fibre. However, given the capacity of a single fibre network and its potential natural monopoly characteristics, it is unclear that competing fibre operators will readily emerge in greenfield estates and requiring such an investment may be wasteful.

Where access to pit and pipe infrastructure is required, it can be sought through the existing facilities access regime in Schedule 1 of the Telecommunications Act which provides for a carrier to access the infrastructure, such as ducts, of another carrier where there is sufficient capacity. The Australian Government is currently considering changes to this regime as part of its broader regulatory review process.

Questions

22.What measures could the Australian Government introduce to facilitate competition for the provision of FTTP infrastructure in greenfield developments?

23.Could the competitive provision of FTTP in greenfields be facilitated by a national online database of proposed developments accessible either publicly or to licensed carriers? Could this also assist with the planning of telecommunications infrastructure in such estates?

Competition at the services layer: access and equivalence

Given the likelihood that infrastructure‑based FTTP competition in greenfield sites may be limited, particularly in the short to medium term, the Australian Government wants to ensure that there is genuine open and equivalent access to wholesale services on bottleneck infrastructure in both new and existing greenfield estates. This includes access to wholesale services on equivalent price and non‑price terms and conditions. This will promote effective competition and choice in the delivery of services which will lead to better outcomes for consumers in these estates.

From the perspective of ensuring a competitive environment, the Australian Government does not consider that developers or FTTP service providers should be able to insist on exclusive wholesale or retail arrangements in greenfield developments which restrict entry of alternative providers. The Australian Government considers that customers are keen to have a choice of retail providers and are critical where developments do not have this feature.

Open access arrangements

To facilitate service-based competition, at a minimum, carriers providing FTTP services in greenfields would be subject to the access framework (as they potentially are now) set out in Part XIC of the Trade Practices Act 1974 (Trade Practices Act). Any reforms made to Part XIC as part of the current review process would necessarily have regard to the operation of the new greenfield requirements.

Under Part XIC, the Australian Competition and Consumer Commission (ACCC) can declare services provided over FTTP networks if declaration is found to be in the long term interest of end-users, thereby subjecting them to open access arrangements.

In the case of a FTTP network in a greenfield estate, this may, for example, require the declaration of a new bitstream access service which would allow retail providers to configure their services as desired, or resale type services which could include services providing voice, data (internet) or multicast video. Intermediary wholesale providers could also access such services, repackage and on‑sell them. Any relevant declaration by the ACCC could apply to existing FTTP networks in greenfield estates as well as new ones, addressing concerns about access to existing FTTP networks.

An alternative approach could be to legislate that all FTTP greenfield networks are open to access by all access seekers as a matter of course. This could occur through the identification of appropriate services for the purposes of Part XIC, for example, under statute or a new type of subordinate instrument.13 Terms and conditions of access could then be determined through the processes applying under Part XIC.

We welcome proposals on possible alternative access arrangements for greenfield estates but note that these would be considered in the context of the broader regulatory review. A matter that would need to be considered is whether multiple access regimes could emerge that could prove difficult and costly to administer.

Equivalence

In addition to services being accessible to access seekers, the Australian Government considers that access needs to be provided on equivalent terms so that all access seekers can compete on an equal footing in the retail market. This is a central theme in the Australian Government’s overall NBN reform package.

The most effective way to ensure genuine equivalence of access would be to ensure that FTTP infrastructure installed in greenfields from 1 July 2010 is operated on a wholesale‑only basis. This would be consistent with the NBN which will operate as a wholesale‑only network. The advantage of a wholesale‑only model is that it would ensure that retail service providers are not unfairly disadvantaged in competing for customers in the retail market. In turn, this would drive genuine competitive outcomes and choice in the interests of consumers.

This type of model is already in operation in Australia. For example, Opticomm is rolling out FTTP networks in Fernbrooke in Queensland, University Hill in Victoria and Lochiel Park in South Australia which it operates on a wholesale‑only basis. Competing retail providers will use these networks to supply internet, telephony, pay TV, free to air TV and other services to consumers in these estates. In Fernbrooke estate, Queensland, for example, there are already two competing retail providers, Cirrus and Internode, and more are expected.

An alternative approach would be to allow FTTP network operators in greenfields to also operate in the retail market providing there is an effective regulatory framework in place to ensure that all retail providers can receive equivalence of access. Suitable arrangements could be developed as part of an integrated package that could be put to developers by prospective FTTP providers. In Canberra, for example, TransACT has deployed FTTP and also provides retail services on the network, while offering access to other retailers.

While an integrated model may offer benefits to the operator, it will not necessarily guarantee wholesale services are provided on an equivalent basis as the FTTP network operator has the incentive to favour its own retail business.

The Australian Government will consider submissions from interested parties on how equivalence in greenfields can best be achieved.

The Australian Government recognises that a number of FTTP providers that have already rolled out FTTP networks in greenfield estates also provide retail services to consumers in these estates. In addition to TransACT, for example, nationally, Telstra has deployed FTTP in some greenfield estates where it delivers its Velocity service package. A question for consideration is whether new equivalence requirements being considered as part of the broader regulatory review could become relevant to these networks as the Australian Government on the basis that it is important consumers in these estates also enjoy the full benefits of competition.

Questions

24.Is it sufficient for access to wholesale FTTP services in greenfield estates to be delivered through the telecommunications‑specific access regime in Part XIC of the Trade Practices Act?

25.Should the ACCC conduct a Part XIC inquiry into the specification/definition of the access service to be supplied over FTTP networks, with particular reference to greenfield estates?

26.Should an alternative approach to providing access such as mandatory access to FTTP networks in greenfield estates be adopted? If so, what? Why?

27.Should it be mandatory that new FTTP networks in greenfield estates after 1 July 2010 be wholesale‑only networks? If introduced, should there be exceptions to this type of rule and if so how should they be administered?

28.What are the minimum equivalence arrangements that should be put in place to ensure wholesale services are provided on equivalent price and non‑price terms and conditions in greenfields?

29.Would it be appropriate and workable to have different access and equivalence arrangements for greenfield FTTP networks depending on whether or not they were operating before 1 July 2010?

Obligations to supply retail services

Using FTTP deployments in new greenfield estates, retail providers will be able to supply a range of retail services to end users, including voice, broadband and content services.

With the entry of new infrastructure and service providers in greenfields, the issue arises as to whether existing universal service arrangements which safeguard the delivery of telephony services should be revised for these areas.

In the absence of changes to the existing USO, Telstra would remain obliged to ensure reasonable availability of a standard telephone service on request in new greenfield estates, even where an alternative provider has installed an FTTP network. Under this scenario, Telstra could seek access to the FTTP infrastructure to provide these services. Alternatively it would remain free to determine the technology (other than copper‑based networks if these were precluded by new legislation) it uses to fulfil its USO. In the absence of any modification of the USO, it would be Telstra’s commercial decision to offer other services (e.g. broadband internet) in the estate.

An alternative is that, in the event that a FTTP network is installed by another carrier and there are other retailers offering services on that network in a greenfield development, Telstra could be relieved of its obligations as the universal service provider and these obligations could be transferred to another party. In this scenario, any changes made to the USO requirements in these areas may need to be contemplated in the context of the broader regulatory review.

Retail pricing

The wholesale pricing arrangements that are put in place under the open access model proposed above would form the basis for the level of retail pricing. It is therefore important that effective wholesale arrangements are in place, including regulatory oversight, to ensure that consumers benefit at a retail level. It is envisaged that, where relevant, access prices would be subject to ACCC oversight through the operation of the Part XIC regime. Moreover, as discussed above, pricing would be a factor that would generally be considered in the selection of a provider to roll‑out FTTP infrastructure in a greenfields estate.

If Telstra were a retail provider on the greenfields FTTP infrastructure, it would be subject to the price control arrangements that would apply to it generally. Currently, other retail providers would not be subject to direct price regulation. However, the proposed model envisages strong competition between retail providers to keep downward pressure on prices at this level. Whether greater regulation of prices in greenfield estates would be necessary or workable, would need to be considered in the broader regulatory context. Nevertheless views are welcome on this issue.

Questions

30.Should Telstra continue to be the universal service provider in greenfield estates where FTTP is deployed by an alternative provider and retail providers are able to use these networks to supply voice services?

31.If Telstra should continue as the universal service provider in greenfield estates, would it continue to be appropriate for Telstra to determine the technology it uses to fulfil its USO in those areas?

32.If Telstra were not to continue as the universal service provider, what, if any, obligations should be imposed on whom to ensure that consumers continue to have access to basic telephony services in greenfield estates?

33.Will the proposed greenfields model deliver satisfactory retail pricing outcomes? If not, would new mechanisms to regulate prices in greenfields be necessary and workable? What form might such mechanisms take? What would be the implications for such mechanisms on the broader market?

Other safeguards and requirements

As a general principle, other existing safeguards would continue to apply to carriers and carriage service providers in greenfield estates. For example, carriers would be subject to requirements in relation to interception and assistance to law enforcement agencies. Carriage service providers are subject to requirements including the Customer Service Guarantee and requirements around the provision of emergency call services.14

These safeguards may be modified in the future depending on the outcome of the regulatory review. If strong separation arrangements between wholesale and retail operations were required in greenfields, some regulatory changes may also be useful to ensure consumer and other safeguards touching on both levels of operation could still operate effectively.

Reporting

As part of these arrangements carriers or councils could report to the Australian Communications and Media Authority or another appropriate body on new developments, total premises and the numbers passed and connected by FTTP. Reporting should however, be kept to a minimum so as to minimise the burden on industry players.

Questions

34.How would progress in delivering FTTP in greenfield estates be best monitored and reported?

Enforcement

If the installation of FTTP by developers was required under telecommunications law (model 1), non‑compliance would be subject to the sanctions under the Telecommunications Act.

If the installation of fibre in greenfields was required under planning law (model 2), developers would be subject to sanctions under existing local government planning laws.

Breaches of a prohibition on the roll‑out of non‑FTTP fixed line networks would be subject to sanctions under the Telecommunications Act (model 2).

Other obligations falling on carriers and carriage service providers would be subject to sanctions under the Telecommunications Act or the Trade Practices Act. ...

Questions

35.What further steps should be undertaken to support this initiative?

36.Would the establishment of a stakeholder group assist with the implementation? If so, how many members would be appropriate, and who should be represented? What should be its terms of reference?...

1 The discussion paper is available at: http://www.dbcde.gov.au/communications_for_business/funding
_programs__and__support/national_broadband_network/regulatory_reform_for_21st_century_broadband

2 100 Megabits per second (Mbps) is readily achievable and FTTP provides a ready upgrade path to faster speeds.

3 For example, FTTP networks are capable of delivering services such as telephone, internet and content services, as well as security services such as closed circuit TV, smart metering for electricity other utilities and other advanced services.

4 Online and Communications Council, Framework for the collaborative development and use of broadband in Australia, December 2008

5 For example, the installation of a FTTP network may require headworks (eg network equipment and a secure shelter) in each estate, more sophisticated electronics in the form of the optical line terminator and optical network terminator (ONT) and different in-building wiring.

6 For example, a submission to the Public Works Committee by the Land Management Corporation (South Australia) estimated the per lot costs for one development to be $2500 for water, $3200 for stormwater, $4800 for power and $4800 for sewerage http://www.parliament.sa.gov.au/NR/rdonlyres/55EB406A-CD9D-466B-AAB2-978338DF8025/13672/AgencySubmissionPlayfordAlive.pdf

7 This approach appears to have been influenced by Telstra’s interpretation of how it should meet its Universal Service Obligation (USO) in greenfields.

8 http://www.ftthcouncil.org/?t=275

9 Telstra (Geoff Booth), Communications Day, 25 May 2009, p. 4

10 http://www.lochielpark.com.au/lochielpark/broadband.htm

11 ‘Line link’ is the terminology used in the Act and essentially refers to cabling, including where cables are joined to one another to form a point-to-point link over a long distance.

12 Eckermann & Associates (for Multimedia Victoria), Aurora Fibre‑to‑the‑Home Case Study, August 2006, available from www.mmv.vic.gov.au

13 This approach would be similar to the ‘deemed declarations’ introduced as a transitional measure in the Telecommunications (Transitional Provisions and Consequential Amendments) Act 1997. The Act provided for existing interconnection services to be ‘deemed’ to be declared services. Under the proposed model it would be necessary to define the services that are required to be regulated.

14 These requirements are set out in the Australian Communications and Media Authority publication, Know your obligations, available at http://www.acma.gov.au/WEB/STANDARD/pc=PC_583.

From: National Broadband Network: Fibre-to-the-premises in greenfield estates - Consultation paper, Department of Broadband, Communications and the Digital Economy, 29 May 2009.