Has The NBN Gone Pear Shaped? Conroy Speaks Out

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Has the roll out of the National Broadband Network gone pear shaped in capital cities? And could the Federal Government be forced to spend billions making up the difference between what was estimated and what several major companies are proposing as a build cost?

Faced with much higher than expected tender bids from contractors, the NBN Company has embarrassed the Federal Government and Communications Minister Conroy,  by telling 14 of the nation’s biggest infrastructure builders that their prices for building the fibre optic network across Australia were too high.

Earlier today Conroy, told ABC Business Editor Kohler that “no more money” other than the $36 Billion budgeted was going to be allocated to the project.

Conroy said: “There’s often an approach that because it’s a government project, we can try and see if we can squeeze a little bit more out, but NBNCo have a mission from the Government, which they’re delivering on, to ensure that Australian taxpayers get value for money”.

He added: “I think the NBNCo; they’re a government business enterprise. They operate at arm’s length from me. I understand from their indications, they’re looking at going through a new process.

KOHLER: Right, but are you saying that there’s absolutely no more money in the pot for building the NBN?

CONROY: Well NBN have a budget. They’ve got a business case, and they are working to ensure that they deliver on their business case and deliver the best value possible for Australian taxpayers.

KOHLER: Well, just moving onto pricing now, looking through the pricing documents, it does seem that it’s going to be very difficult to be a small national service provider based on the NBN, and that really the small players are going to have to go through Telstra and Optus. Isn’t that right?

CONROY: Well, I expect that there’ll be changes in the markets. Wholesale aggregators may come into the market.

But the complaint being made by Internode is a very important contribution, and it would’ve been really fantastic for Internode to have made that argument to the ACCC.

What essentially Internode are complaining about is that the ACCC decision to move from 14 POIs – the NBN’s preferred position – to 121 POIs, they believe was not the best decision.

They didn’t actually put in a submission to the ACCC’s inquiry on this very matter, but as you would be aware there were many companies who argued the exact opposite to what Internode are arguing.

And the ACCC – they’re the competition regulator – they made a judgement and have come down in between where Telstra, Optus and a range of companies wanted, and Internode would’ve preferred.

And while the government and NBN supported 14 POIs, the final decision was that recommended by the ACCC. So this is a complaint about what the ACCC decided, and unfortunately Internode chose not to put in a submission.

KOHLER: Well, you’re not entirely right. I mean, yes it’s partly about the points of interconnect and that’s obviously an ACCC decision, but the NBN’S own internal pricing for virtual circuits raises the bar to a level that most of the smaller players say they can’t afford.

 

CONROY: There’s a different aspect here. Firstly, the critique that Simon Hackett of Internode is using is that a company, a newly establishing company, will want to access all 121 points of interconnect. Now that’s an assumption.

There are many who would argue that a small start-up company may not want to seek access to all of the 121 sites at the beginning. They would want to grow as a strategy to become a national company.

So Simon’s analysis is based on a number of assumptions. There’s nothing wrong with his assumptions, but there are many who would dispute and say that a start-up company wouldn’t necessarily try and be a national company on day one.

KOHLER: Well ok, let me put it this way – Telstra has 200 wholesale customers at the moment in Australia for the internet. Would you like to see those 200 Telstra wholesale customers switch over to become NBN customers? I mean, after all, the whole point of the NBN was to break Telstra’s hold on wholesaling telecommunications in Australia.

CONROY: It’s not for me to decide where companies should wholesale from. As I said, I anticipate that there’ll be new players in the market. I anticipate that there will be wholesale aggregators who come in, who may not necessarily be Telstra or Optus.

You’re asking to predict what the outcome of an entirely new set of market circumstances are, but one thing you can be assured of, is that genuine retail competition will enter into the Telco market in Australia for the first time.

KOHLER: Well yeah, but it’s not much of a difference if everyone still has to go through Telstra.

CONROY: Well as I said you’re making an assumption that only Telstra will be wholesaling. There is an entire new industry structure, which I’m not prepared to predict what the outcome is going to be when genuine competitive forces start to come into play in a market that they haven’t existed before.

KOHLER: Okay, so you won’t predict how many service providers will have, but how many would you like? I mean is it five, just a small number of service providers, or is it a hundred?

CONROY: Well I want to see the maximum competition, so that consumers get the maximum benefit.

I mean take Vodafone for instance. They’ve announced that they will enter the fixed line market in Australia now because of the restructuring of the market plus the NBN – creation of the NBN.

I mean, this is the largest telecommunications company in the world is saying that it’s now going to come into the Australian market for fixed line.

 

I mean this is a huge win for competition, and no one can yet predict what the final outcome of the structure of the market is going to be. So I think people need to take a big deep breath, and let’s see how a few market forces start playing out in the telecommunications sector, and I think that’s a good thing.

KOHLER: I was a bit disappointed to see 12 megabytes a second speed across the whole network as being the entry level. I mean it wouldn’t cost any more to make it one hundred megabytes on the fibre, but I presume that’s because you have to make uniform speeds across all of the platforms, fibre, wireless and satellite.

CONROY: Well, people will have a choice. I mean this argument that we should only have one speed available. I mean we’re offering people a choice.

You’ve got a business case that’s built around people having choice, and that’s not something that you have on copper. I mean, you’ve got no choice how close you live to an exchange. You can have an exchange that offers ADSL 2+ services, but if you live more than one and half kilometres from an exchange, many Australians will tell you that the service degrades. And you’re lucky, on average, with ADSL 2+ to get 8 meg down, so we’re actually providing a range of choices for consumers to pick from.

If someone wants more than a – more than 12, they’ll be able to buy more than 12, and when you’re on copper, theoretically you get 24 meg, but you don’t have any choice to go above that on copper at the moment.

KOHLER: With all of these things we’ve been talking about – the construction tender’s been called off because they’re all too high, and the pricing issues in the NBN, are you having to squeeze the NBN lemon a bit too much because of the need to make sure that it’s saleable when you want to sell it?

 

CONROY: Well the business case, which was released back in December, stands in its own right. And while there’s lots of commentary, lots of individual companies talking their own book today, what you will see is retail competition, genuine retail competition, new entrants to the market, already announced – Vodafone – and you’ll begin to see a change in the way telecommunications services are offered in the marketplace.

You’re also going to see lots of new innovation. What we’ve done is created a level playing field platform, and then unleashing the innovation that’s been held back by our existing market structure.

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