Killer Upgrade

In the super-heated environment of a Federal election campaign, it is worth taking a step back from daily political brinkmanship to look, with a calm eye, at the legal and regulatory framework being proposed for the new high speed broadband network known as NBN. From there we can get a real sense of what is being planned for our telecommunications future, and potential impacts on Tasmania.

We have already seen some early drafts of key legislation intended to underpin the NBN regulatory regime, namely the National Broadband Network Companies Bill 2010 and the Telecommunications Legislation Amendment (National Broadband Network Measures – Access Arrangements) Bill 2010.

Australian telecommunications laws are complex, regulating everything from customer service standards, universal service obligations, through network deployment, to planning, retail and competition law – so it is worth trying to distil some of the key elements.

As we know, Australia is a vast continent, with substantial geographic challenges in terms of distance and topography. Telstra’s current copper network does not extend to every house in Australia, and nor will NBN – areas of Far North Queensland, the Northern Territory, parts of Western Australia and areas of Tasmania spring to mind as difficult to access with cable. NBN Co will need to offer access using three technology platforms: cable (fibre), wireless (radio) and satellite. If we remember, sound waves travel largely in straight lines, it is easy to understand why three complementary platforms are needed.

Telstra is the existing network provider, and as such is subject to a regulated universal service obligation ‘USO’, meaning everyone has a right to a phone connection. In some cases depending on geography and access, satellite or wireless technology is used to meet that obligation. It is not yet clear whether NBN Co will be subject to a similar USO as applied to Telstra. It will be interesting to see how that residential access plan moves forward, particularly as some areas in Tasmania may also require satellite or wireless connection prior to migration of customers off the copper network. Without a USO, there would be no regulatory requirement for universal residential access.

The proposed legislation also aims to ensure uniformity of pricing across the three technology platforms, leading to an interesting discussion about cross-subsidisation of cheaper metro connections as compared with remote and regional connections that are more expensive. Wholesale price setting issues, will no doubt be dealt with internally to NBN Co, but it is worth noting that a ministerial pricing determination is a possibility – potentially restoring to Government a price setting role.

The legislators envisage that NBN Co will initially only operate at a wholesale level, selling access equally to all retail telco players. Like any retail business, the wholesale price set by NBN Co, is a key input used to determine the price at which a retail telco can provide services to customers, and still make a profit. Given it should be a level playing field in terms of buying wholesale capacity, it is likely retail level sales will become less about pure price competition, and more about bundled services, such as content, hardware, software and handsets. This is potentially very good news for Tasmanian business, but may not necessarily bring retail prices down.

One of the more challenging proposals floated for discussion is the idea that NBN Co may ultimately be able to move into retail level competition, or spin off a related company to provide retail services. This idea is likely to meet with some stiff opposition from the existing retail players, who will (probably quite correctly) argue that it is not good for competition.

So, will the cost of your home phone and internet services come down? I’m leaning towards thinking possibly not, but will you have access to new bundled packages of retail services – phone, internet, computer and digital content? Probably yes, and these packages may offer you more ‘bang for your buck’. We might also see a raft of new deals on offer that bundle internet connection with content streaming and services such as bill payment and banking.

A Heads of Agreement has reportedly been entered into by Telstra and NBN Co and a phase out of Telstra’s copper network is on the cards, as the transfer of its customer traffic to NBN is achieved. In essence this hands monopoly power in relation to the telco network to the publicly owned NBN Co. Some have asked whether it is appropriate to reinvent an infrastructure level monopoly exchanging Telstra for NBN Co – and my answer would be yes, but only because the barriers to entry are prohibitively high, so as a nation, we need to put our collective infrastructure investment into one killer network upgrade. So, a deal with Telstra was a practical and sensible way forward – Telstra has the pits, pipes and skilled workforce able to build, manage and maintain NBN. A collaborative approach makes sense.

What will happen to the existing workforce, and sub-contractors, in the transition to NBN? This is the most important question of the entire discussion, a question that the key players are probably working through right now. Telstra employs about 1200 people in Tasmania, and latest figures indicate that it spends approximately $3million a week on Tasmanian operations. This is a big number, affecting hundreds of working families, who boost our state economy each and every pay day.

This is not a simple buyout of one company by another, in which one would expect the existing workforce to also be transferred. What we are seeing is the sale of an asset (Telstra’s customer traffic) to another company, which may or may not intend to utilise the existing workforce for ongoing operations.

Whilst NBN will undoubtedly provide a high speed telecommunications service, the big picture opportunities for existing Tasmanian telco employees, sub-contractors and businesses, also require focus.

So where are these opportunities for Tasmanian businesses and job seekers? There is no technical reason why national companies requiring mega-data storage facilities (such as banks and government departments), cannot now locate those facilities in Tasmania. Perhaps a full court press from the state managers of all our national companies to lobby to locate data storage in Tasmania, is in order? Content rich data will be able to be transferred easily in and out of the state. Coupled with our strength in the arts we may well see some innovation in relation to film, animation and music commercialisation that has not been possible to date.

If NBN does not proceed, we may well have lost a once in a lifetime opportunity to secure world class publicly owned telecommunications infrastructure.

Madeleine Ogilvie is a commercial lawyer, a former General Manager at Telstra Corporation (Retail) and was an ALP candidate in the last state election.