Questions abound over Telecom's fibre role

Rosalie Nelson asks why our government isn't as forthright as Australia's

In Australia, the government is doing everything in its power to force Telstra to participate in its National Broadband Network (NBN) programme. By contrast, in New Zealand, the government appears almost indifferent to Telecom’s participation in its fibre-to-the-premises proposal.

Which raises the question: what is the role of the incumbent in government-led fibre programmes?

In Australia, the government has a dual agenda: it is tying long-debated regulatory reform to its A$43 billion national fibre-to-the-premises network initiative. And it is using this process to both end Telstra’s vertically-integrated market power and potentially bring Telstra’s network assets into the NBN.

If proposed separation legislation is implemented without change, it will mark the end of a five-year public and often bitter battle between Telstra and the Australian government against separation. The government’s message to Telstra is clear: ‘break yourself up — or we will do it for you’. If Telstra does not voluntarily submit undertakings to structurally separate its business, the legislation provides for the government to impose a strong functional separation framework on Telstra and also inhibit access to much-needed future mobile spectrum.

In Australia (and Singapore) the incumbent has been explicitly recognised as a critical part of the NBN process: Telstra has scope and scale with its existing network assets and a key role as an NBN tenant, rather than competitor. The structural separation of Telstra implies the sell down or divestment of its fixed network assets into the NBN.

However in a speech, Senator Stephen Conroy has said the government would also consider Telstra progressively migrating its fixed-line traffic to the NBN over a period of time and under set regulatory arrangements, and for it to sell or cease to use its fixed line assets on an agreed basis. This shows the importance placed on migration from copper services to fibre.

In New Zealand, the government lacks Australia’s regulatory levers to drive Telecom’s involvement. Telecommunications regulatory reform and separation is largely complete. But as it stands the New Zealand fibre plan — called the Ultra-Fast Broadband (UFB) initiative — offers few incentives (or disincentives) for Telecom, TelstraClear or other carriers to participate.

The UFB initiative specifies that it is willing to overbuild existing networks if access cannot be agreed on “reasonable” open access terms; any infrastructure provider must divest its retail interests or take a minority stake in a local fibre company; and the fibre network will be sold at its most raw level — dark fibre — on open access terms, which fundamentally changes the return on investment for existing assets.

The net result is that Telecom, like Telstra, would need to sell down or divest its network business, Chorus, if it wants to be a part of the plan. There is an argument for the further separation of Chorus, but right now Telecom publicly says it sees little commercial incentive to consider it.

Yet, at a pragmatic level, Telecom and Chorus are critical to this initiative. Chorus has the real estate, ducts, trenches, existing national fibre reach and expertise. Chorus assets would allow the government to minimise the risk the overbuild, deliver a coherent national infrastructure and dark fibre pricing model, and focus its investment in areas where the business case is marginal.

It would help to deliver the economies of scale necessary to the business case and ensure a managed migration from existing copper networks, supporting the business case. The same principles apply to TelstraClear’s infrastructure.

This is not to say, however, that the government should work with Telecom as a sole partner, or favour only one player – it requires negotiating flexibility on both sides. The government has a clear objective to prevent the risk of re-monopolisation inherent in a national fibre network and deliver open competition with minimal regulatory intervention longer term. This is important and needs to be retained.

But telecommunications is a game of scale and the FttP business case is tough under optimal circumstances. Fibre overbuild is, frankly, uneconomic in a country of New Zealand’s size and scale and we cannot ignore the issues of how we manage migration from copper, maximise use of existing assets and encourage optimal takeup of the new fibre network.

Otherwise we risk the main infrastructure providers choosing to compete rather than co-operate which would increase the overbuild costs, remove two key anchor tenants and make a tough business case even tougher.

This means the government requires clearcut objectives but a process flexible enough to encourage participation from both existing and new industry players — and it is not clear the current plan allows for that.

- Nelson is telecommunications research manager for IDC New Zealand

Join the newsletter!

Error: Please check your email address.

Tags Networking & Telecomms IDfibretelecomNBNTelstra

Show Comments
[]