Telcos seek to strengthen NBN Co wholesale restrictions

Utility exemption for NBN Co should be removed, Telstra and Optus argue

Major telcos and Internet service providers including Telstra, Optus, Vodafone and iiNet have pushed for clarity on some aspects of NBN Co’s wholesale role and the tightening of restrictions that prevent the company charged with rolling out the National Broadband Network from supplying services to end users.

The NBN Panel of Experts — aka the Vertigan panel — in March issued a paper that sought comment on the regulatory environment in which the NBN is being rolled out, including the operation of NBN Co and telecommunications industry access arrangements under Part XIC of the Competition and Consumer Act 2010.

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

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

In separate submissions to the panel, Telstra, TPG, Vodafone and Optus called for the removal of the utility exemption.

“Home monitoring and control systems and machine to machine applications are anticipated to be growth areas,” Telstra’s submission (PDF) states.

“Downstream service providers will compete against each other to deliver these services. There is no ‘market failure’ justification for NBN Co being involved in the supply of these services.”

Optus argued that there are “already mechanisms in place that will allow utility bodies and transport authorities to apply for access to the NBN”.

“Namely, the specified classes of utilities as an end-user are already able to purchase the NBN services from RSPs,” the telco’s submission (PDF) states.

“Alternatively the utilities can source services through existing RSPs. It would not be appropriate for utilities to be both in a position to procure NBN services directly from NBN Co and RSPs— this would undermine the structurally separated market structure that would have led to the requirement for NBN Co to operate as a wholesale-only provider in the first place.”

iiNet stated it had no firm views on the matter, while Macquarie Telecom argued that “the basis on which the exception was originally provided remains valid or at least untested”.

“Accordingly, Macquarie sees no reason at this time for making any change,” its submission (PDF) states.

The telcos generally agreed that NBN Co should operate at a low level of the OSI network model; generally Layer 2 with the exception of Layer 3 services for satellite connections.

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“NBN Co should be explicitly limited to operating at the lowest meaningful connectivity layer to enable complementary investments, innovation and migration to confidently occur and to promote competition by ensuring that access seekers can best differentiate their service offerings,” Telstra argued.

This restriction needs to be part of the regulatory environment the NBN wholesaler operates in, the telco’s submission states, not just a shareholder directive.

Vodafone stated that it believes that NBN Co should generally operate at Layer 2 of the OSI model, but be able to apply to the Australian Competition and Consumer Commission to provide Layer 1 and Layer 3 services. iiNet argued that consideration should be given to NBN Co providing Layer 1 access, as a means for RSPs to circumvent slow product development timeframes by the NBN wholesaler.

Telstra, Optus and iiNet all believe that the wholesale-only restrictions imposed on NBN Co need to be tightened to avoid situations where large enterprises get carrier licences as a means of doing an end-run around RSPs and dealing directly with NBN Co to save money.

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

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

In a similar vein Optus argued that an amendment to the National Broadband Network Companies Act 2011 “to prevent large corporations from becoming RSPs for the purpose of obtaining direct supply of NBN services,” the telco stated.

“This would undermine the market structure and wholesale-only structure of NBN Co. The amendment retains the flexibility to allow RSPs to wholesale NBN services to other RSPs.”

Telstra argued that the “current general restriction limiting NBN Co to supplying carriers and carriage service providers (CSPs) is too readily satisfied because the requirements for a customer to qualify as a carrier or CSPare relatively low”.

“The Layer 2 character of the NBN service is unlikely to be much of a hurdle to large corporate or Government customers acquiring directly from NBN Co because they often have sophisticated in-house IT skills or can acquire those skills from systems integrators,” the telco stated.

In a submission (PDF) tendered in response to an earlier public consultation by the Vertigan panel, NBN Co argued that the current wholesale-only framework was adequate, and that if large enterprises wanted to receive carrier licensing they should be able to.

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

“Corporate customers that are prepared to meet the requirements of being a carrier or a carriage service provider are entitled to become a customer of NBN Co and to compete with other entities meeting those requirements, thereby increasing the level of retail competition in the market.

“Presumably it is this potential retail level competition that concerns Telstra and iiNet.”

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Tags Telstranbn conational broadband networkiiNetNational Broadband Network (NBN)TPG

More about Australian Competition and Consumer CommissionIinetMacquarie TelecomNBN CoOptusTelstra CorporationTelstra CorporationTPG TelecomVodafone

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