Broadband network debate continues

By Ali Moore for Lateline Business

Posted July 3, 2009 15:01:00

Debate continues to rage about the best way to hook Australians up to high-speed internet (www.sxc.hu: Rodolfo Clix, file photo)

It has been three months since the Government announced plans to form a new company that, together with the private sector, will invest up to $43 billion over eight years to build a high speed National Broadband Network (NBN).

The Government will be the majority shareholder, but it will sell down its interests within five years of the new network becoming operational, and the private sector can invest via cash or the contribution of assets.

Submissions to a Senate committee on the broadband plan close today, and on Wednesday the Government announced the first round of regional locations that will benefit from the national roll-out.

But the debate is still raging about the best way to build the network.

SingTel Optus has made a number of submissions to the Government over the NBN.

The director of government and corporate affairs with Optus, Maha Krishnapillai, says he is actively discussing putting his telco's cable network into the NBN.

"We think we can kickstart the NBN network to about 25 per cent of the Australian population by converting our pay-TV HFC network, which is a hybrid fibre co-axial network, into a fibre-to-the-premises network," he said.

Numerico Advisory director Tim Smeallie says if the NBN does takes the Optus cable network, they will need to look at a new framework before deciding what will happen to Telstra.

"There's still a lot of water to go under the bridge to determine what the NBN is actually going to look like," he said.

"So, we need to step forward to a new framework. Then, once the new framework is established, from there look at how do we deliver a new national broadband network for Australia within the parameters of what the Government is aiming to achieve."

Ideal scenario

Mr Smeallie says Telstra's involvement in the NBN is an ideal but not mandatory scenario.

"It's ideal in that it may fast-track development of the network. But it's not mandatory. If you think about Telstra, they're not a telco equipment manufacturer; they don't produce fibre, glass fibre - they are not a engineering and civil works business," he said.

"So, the Government will still have choices of; does Telstra participate? If they do, that may fast-track the process."

Mr Krishnapillai says the network is a major leapfrog forward in terms of technology and Telstra does need to be involved.

"The technology we'll be using in terms of fibre to the people's premises is quite a different scenario to existing networks.

"I think certainly Telstra does need to be involved in some way."

Structural separation

Mr Krishnapillai says until the fundamental incentives are changed, nothing will change in the sector.

"The incentive really is built around the fact that Telstra earns 60 to 88 per cent margins today on its fixed network. They protected that tooth and claw through the courts for the last decade," he said.

"Until you change that fundamental incentive, you are not going to have real negotiations, we believe, with Government. And that's what it comes back to; the separation of Telstra in its structural separate world."

But Mr Smeallie does not think structural separation is a requirement under the NBN.

"The structural separation may provide a short-term solution and may stimulate competition in the short-term, but over the timeframe of constructing a network, we'll get to the end of NBN being built, being available to consumers," he said.

"The structural separation of Telstra becomes irrelevant in that context."

Investors

Mr Smeallie says investors are looking for certainty which they do not currently have.

"One of the key factors that investors are looking for now, given the turmoil we've seen over the last 18 months, is certainty," he said.

"They, at the moment, don't have any certainty of what their business will actually look like? What do they own? What does this company look like in three years' time, five years' time, eight years' time?

He believes the level of competition is going to intensify very significantly over the next 10 to 20 years.

"It is going to be a network that is wholesale only. So, it's not just going to be the existing telcos that offer services," he said.

"In essence, any business that has a brand and has customer relationships would have the ability to resell broadband services from NBN Co."

Lateline Business offered Telstra the opportunity to join the debate, but it declined to take part.

Tags: company-news, telecommunications, government-and-politics, federal-government, internet, australia

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