Bills Digest no. 144 2009–10
Telecommunications Legislation Amendment (Fibre
Deployment) Bill 2010
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Concluding comments
Contact officer & copyright details
Passage history
Telecommunications Legislation Amendment
(Fibre Deployment) Bill 2010
Date introduced: 18 March 2010
House: House of Representatives
Portfolio: Broadband, Communications and the
Digital Economy
Commencement: The formal provisions would
commence on the day the Bill receives Royal Assent, while the
Schedules are proposed to commence on 1 July 2010. It must be noted
that Part 2 of Schedule 1 would not commence at all if relevant
provisions of the Telecommunications Legislation Amendment
(Competition and Consumer Safeguards) Act 2010 commence
first.
Links: The
links to the Bill, its Explanatory Memorandum and second
reading speech can be found on the Bills page, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
The Telecommunications
Legislation Amendment (Fibre Deployment) Bill 2010 (the Bill) would
insert a new Part 20A into the Telecommunications Act 1997
which would prohibit the installation of a (telecommunication)
line[1] other than
fibre-optic fixed-line infrastructure to the premises
(FTTP)[2] or
‘fibre-ready’ fixed-line facilities[3] in greenfield developments[4] nationwide. The Bill
provides an array of associated legislative mechanisms to support
this primary purpose, in particular relying heavily on legislative
instruments.
The legislative regime would apply to those developments where
the relevant line installation takes place after 1 July 2010.
The Australian Government’s fibre
deployment policy for greenfield developments forms part of its
overall National Broadband Network (NBN) initiative. A centrepiece
of this initiative was the 7 April 2009 establishment of a
company (the ‘National Broadband Network Company’ or
‘NBN Co’) to build and operate the new high speed
NBN.
The NBN Co was tasked with implementing the Government’s
NBN initiative which comprised the following national outcomes:
- connection of 90 per cent of all Australian homes, schools and
workplaces with broadband service speeds of up to 100 megabits per
second (Mbps);
- connection of all other premises in Australia with next
generation wireless and satellite technologies that will deliver
broadband speeds of 12Mbps; and
- direct support of up to 25,000 local jobs every year, on
average, over the 8 year life of the project.
It is proposed that the new high speed broadband network will be
constructed according to the following broad guidelines:
- in towns with a population of around 1,000 or more people -
connect homes, schools and workplaces with optical fibre, providing
broadband services to Australians in urban and regional towns with
speeds of 100Mbps and extending the use of next generation wireless
and satellite technologies to deliver broadband connection speeds
of at least 12Mbps to people living in more remote parts of rural
Australia (and with populations of less than 1000 people);
- provide fibre-optic transmission links connecting cities, major
regional centres and rural towns;
- be Australia's first national wholesale-only, open access
broadband network;
- be built and operated on a commercial basis by a company
established independently of Government and involve private sector
investment; and
- be expected to be rolled-out simultaneously in metropolitan,
regional, and rural areas.[5]
Funding of the NBN
The Government will make an initial investment of $4.7 billion
towards an enhanced NBN via a company (the NBN Co) established to
build and operate a new NBN to deliver telephony and high speed
broadband to Australian homes, schools and businesses. The
preliminary estimate is that the enhanced NBN will cost up to $43
billion. The Government’s investment in the NBN Co will, in
part, be funded through the issuance of Aussie Infrastructure Bonds
(AIBs). AIBs will provide an opportunity for households and
institutions to invest in the NBN.[6]
The Government has introduced the Bill with its requirement that
greenfield developments must use FTTP technology from 1 July 2010
in order to progress legislative changes that will facilitate the
NBN Co’s work and facilitate the rollout of fibre
networks.
The Government views FTTP as superior technology to the
traditional fixed-line copper network and has indicated that they
believe it would be counterproductive during the roll-out of the
NBN, to have new homes and other premises in greenfield
developments built with a connection to the traditional fixed-line
copper network.
The Government argues that the installation of copper-based
networks in greenfield estates will lead to higher total costs in
the long-run, where these estates would need to be retro-fitted
with FTTP connections in future. In addition, the installation of
FTTP in greenfield estates will ensure that these estates do not
become future broadband blackspots (that is, that they are excluded
from the future high speed broadband network through lack of
appropriate infrastructure).
The Government policy rationale states that consumers attribute
a significant positive value to the availability of FTTP
infrastructure in a new estate and are therefore willing to accept
the higher capitalisation costs of new properties with FTTP
infrastructure.[7]
The Telecommunications Legislation Amendment (Fibre Deployment)
Bill 2010 has been referred to the Senate Environment,
Communications and the Arts Legislation Committee for inquiry and
report by 12 May 2010. Details of the inquiry can be found at
http://www.aph.gov.au/Senate/committee/eca_ctte/fibre_deployment/index.htm.
The following interest group submissions to the Senate Committee
in relation to the Bill are summarised below, as collectively they
present what we judge to be the main issues relating to the Bill
and its implementation.
Housing Industry Association
The Housing Industry Association (HIA) does not support the
underlying premise of the Bill that seeks to introduce a mandatory
requirement for all new developments from 1 July 2010 to fund the
cost of installing FTTP, whilst 90 per cent of all existing
Australian households are expected to receive this service at no
direct cost via the NBN Co’s roll-out of the network.
In other words, it is proposed that the majority of Australian
households will receive Commonwealth funded FTTP, whilst new home
buyers are asked to pay for this same service via an increased cost
of new housing.[8]
The HIA believes that the Bill will place an additional burden
on new home buyers, and in particular first home buyers, placing
further negative pressure on housing affordability:
The costs of utility services to new developments, whilst paid
by the project developer during the construction process, are
inherently included in the final cost of land and housing
development. Therefore, the home buyer pays the costs of these
services and they have no choice about the level of service they
receive.
The HIA raises additional concerns regarding Telstra’s
universal service obligation (USO) which will continue to exist
under the changes proposed by the Bill:
The USO requires Telstra to provide all homes with service
through the most appropriate technology at the time. The decision
about what method of servicing is used is completely at
Telstra’s discretion…The Government needs to urgently
clarify how Telstra’s USO will work in conjunction with the
Bill, to avoid undue costs or delay to current and future
developments.[9]
Universal Communications
Group
The Universal Communications
Group (UCG) sought to highlight two issues from the Bill,
specifically:
- the ownership and management of
the resulting greenfield fibre deployments; and
- the impact of small
sub-divisions and the potential role of local councils to
facilitate aggregation as part of local development plans.
In relation to these two issues, the UCG proposed that the
subordinate legislation should ensure that:
a) greenfield FTTP networks avoid
poor performing network operators that own or inherit network
assets by defining acceptable contractual terms between developers
and the network owner;
b) inappropriate decisions by
developers with respect to network construction and operator
selection are not permitted, by defining a panel of approved FTTP
network constructors and operators; and
c) the efficient aggregation of
development estate broadband networks takes place as part of local
council planning.[10]
Telstra
While Telstra supports the
Government’s vision of fibre in all new developments, they
state that:
the Bill in its current form is
generating uncertainty for State and Territory Governments, local
councils, developers, residents and other end users and for
carriers including Telstra.
Installation of fibre networks
Telstra notes that while the Bill proposes to prohibit the
installation of non-fibre fixed-lines, it does not actually propose
to require the installation of the fibre-optic networks. With
respect to whether State and Territory planning laws requiring the
installation of fibre-optic networks are necessary in the absence
of such requirements, with less than three months to the 1 July
2010 start date, State and Territory Governments are unlikely to
have fibre obligations in place in time, if they choose to do so.
Without a clear requirement to install fibre infrastructure,
developers retain the option to proceed with developments without
the installation of any fixed-line infrastructure at all.
Installation of wireless voice telephony
Without a positive requirement on developers to deploy fibre,
residents in new developments may end up having to wait until the
NBN rolls through their area prior to receiving FTTP. Although
Telstra has a USO to supply voice telephony to end users, Telstra
states that it must fulfil this obligation using the most
cost-effective technology available. Telstra deems fibre generally
un-economical without a developer contribution. As copper is
prohibited under the proposed legislation, wireless is likely to be
the best short-term option in many circumstances.
To alleviate developer concerns regarding potentially excessive
contributions, Telstra suggests that the Minister could cap the
quantum of contribution that carriers could request from developers
and align this with the scope of the non-fibre prohibition.[11]
Fibre-ready requirements
The Bill proposes that as an alternative to the non-fibre line
prohibition, the Minister may instead apply a prohibition on the
installation of passive infrastructure, such as ducts, that are not
fibre-ready. In other words, in such circumstances it would be
enough to install empty ducts that are capable of accommodating
fibre in the future.
Telstra states that it is uneconomic to pull copper through
empty fibre-ready ducts as these new copper-lines will be
superseded by fibre before the initial capital costs are recovered
via end user charges. Thus, developments that the Government
designates as being subject to the lesser fibre-ready requirement
are likely to have voice and data services supplied via wireless
until the arrival of the NBN Co’s rollout of FTTP.
Fibre-first implications
Telstra notes that it is unclear whether the non-fibre
prohibition will apply to the first-in network or to all networks
subsequently deployed in a development area. For example, a
permanent all-fibre requirement could prevent the extension of
Telstra’s, Optus’ or TransAct’s hybrid fibre
coaxial networks into new developments to deliver pay-TV,
subsequent to installation of the fibre-line. The
Government’s fibre objectives would appear to be met once a
fibre network is installed. Telstra argues that the potential (or
otherwise) for subsequent installation of other technologies should
be made explicit in the legislation.
In summary, Telstra’s submission presses the urgent need
for greater clarity on the Government’s intended application
of its policy to provide certainty for residential and commercial
developments across Australia.[12]
Master Builders Australia
Master Builders Australia (MBA) has serious concerns regarding
the approach of the Bill at this time. The lack of detail as to the
implementation of the Bill and the later legislative instruments is
creating major uncertainty within the industry. MBA therefore finds
it difficult to support the Bill until the details of
implementation are finalised.
The MBA is concerned with the final cost that the
developer/builder will face given the new cost for
telecommunications within a development and believe that this issue
is inadequately covered in the Explanatory Memorandum.
As an example, the backhaul[13] of telecommunications from a new development to
an appropriate point of interconnection in an existing
telecommunications or fibre network is an additional cost. Where
new backhaul infrastructure is required, the costs can be
significant. The MBA is of the view that backhaul for some
developments can cost $400,000 - $700,000 or more, depending on the
circumstances. This cost would need to be recovered and is likely
to have a deleterious impact on home affordability. This is at odds
with the Government’s housing affordability objectives.
The cost of FTTP in greenfield developments will come in
addition to any other new COAG and Commonwealth Government
requirements, such as the new 6-star energy efficiency requirements
and the access for the disabled premises standards and will
increase the cost of new housing.
Finally, the MBA strongly support the principle of national
consistency in regulatory systems and would be concerned if the
introduction of the FTTP produced another set of State, Territory
and local government variations to greenfield site
regulations.[14]
Urban Development Institute of Australia
The Bill does not include or address many of the major issues
that the Urban Development Institute of Australia (UDIA) has in
relation to the introduction of FTTP infrastructure to greenfield
developments since it leaves key details regarding implementation
to the subordinate legislation.[15]
In short, the UDIA believes that the key elements of this
legislation are still unknown. This current lack of information
regarding the legislation raises concerns in the development
industry about a range of issues such as:
- the commercial effects of the proposed legislation upon
developers and new homebuyers;
- the impact that the cost of FTTP will have upon housing
affordability;
- the potential for NBN funding to support the cost of
implementing FTTP;
- the need for equitable treatment of customers in greenfield and
brownfield sites (particularly in relation to connection
charges);
- the practical details of the NBN rollout related to brownfield
and neighbouring greenfield sites; and
- the potential impact of the NBN Co implementation model upon
existing FTTP providers who may already be delivering services to
developers.
Without this information, the UDIA is not in a position to
provide support for the legislation. The UDIA also believes that
the legislation should not be debated by the Parliament without
particular attention to the subordinate legislation.[16]
Optus
Optus has argued for the NBN Co to be charged with exclusive
responsibility for deploying fibre into greenfield developments.
The firm’s general manager for Interconnect & Economic
Regulation, Andrew Sheridan, told the members of the Senate
Environment, Communications and the Arts Legislation Committee
inquiry into the Bill, that to leave greenfields customers with the
prospect of non-NBN fibre infrastructure would go against the
national network’s overarching objectives and risk throwing
off its economic framework:
Our position is that NBN Co be given the responsibility of
ensuring the deployment of fibre in all greenfields locations. This
will overcome a number of practical issues made in our submissions.
As it currently stands, the legislation does not require NBN Co to
provide fibre to greenfield locations. Our opinion is driven by the
practical consideration of having to interconnect with several
providers.[17]
Whilst being broadly supportive of the intent of the draft
legislation, Optus argued that the present Bill appears to conflict
with the objective of having a single national broadband network as
it implies that customers in new developments may be served by
non-NBN Co fibre infrastructure:
In a number of submissions we have said that we think there
should be a single network and that is because of the cost of
deployment to each individual premise. It does not make economic
sense to have two wires to every home.
During this Committee, Sheridan also speculated about the likely
timeframe for deployment by NBN Co, saying that:
On the balance of probabilities, it is unlikely they will be
ready to begin fibre deployment by [July] 2010. If they are not
ready, then the commencement date of the legislation should be
moved.
In its submission, Optus
suggested several steps that might be taken to ensure the close
involvement of NBN Co. These included:
- requiring NBN Co to provide design requirements for all
deployment;
- mandating that any new greenfield fibre deployment be deployed
by a wholesale only service provider; and
- requiring future acquisition of the fibre deployment by NBN Co
with full compensation.[18]
Pros
In the Explanatory Memorandum to the Bill it is stated that FTTP
is widely recognised as the optimal communications technology for
the future. This view is based primarily on the relative data
capacity of fibre in relation to existing alternative
technologies.
Figure 1 below presents the average advertised download speed by
broadband internet access technology across OECD countries as at
September 2008. In terms of internet capacity, FTTP is preferred
because the capacity of fibre is much higher than traditional
copper-lines[19]
and the capacity of the line is relatively easy and inexpensive to
expand once the fibre is in place (adding an additional laser to a
line is a relatively simple process).
Implicit in the Government mandated rollout of FTTP in
greenfield developments is a view that fibre is the superior
technology and will remain so in the long-term, long after the
completion of the NBN. Assuming that is the case, then installation
of FTTP in greenfields developments during the construction phase
would likely be less costly than having to retro-fit post
construction.
Figure 1: OECD average advertised download speeds,
kbit/s, by technology, Oct 2009
Source: Organisation for Economic Co-operation and
Development (OECD), ‘OECD Broadband Portal’, OECD
website, viewed 4 May 2010,
http://www.oecd.org/document/54/0,3343,en_2649_34225_38690102_1_1_1_1,00.html
Note: kbit/s refers to kilobits per second, where a
kilobit is a 1000 bits. FTTH or fibre to the home is equivalent to
FTTP. DSL technology utilises copper-lines for the purpose of
internet access. DSL refers to digital subscriber line, a
technology that allows high-speed transmission of text, audio, and
video, usually over standard fixed copper telephone lines.
Another implicit assumption in the Government’s approach
is that it is appropriate for governmental regulation to play a
role in directing and supporting a particular form of
infrastructure at tactical junctures, particularly where a desired
infrastructure might not otherwise be developed, or where that
infrastructure does not achieve a desired level of up-take or
distribution, through market forces alone.
Comparisons to road infrastructure however are overstretched and
an inadequate analogy given the dynamic nature of the
telecommunications sector. Nevertheless, arguments for government
support of telecommunications infrastructure continue to be made.
Ideally, in the absence of any substantiated public good arguments,
this type of Government intervention should take place where there
are inherent benefits in ensuring widespread or location specific
access to infrastructure, and those benefits outweigh the costs,
and are substantiated and proven.
Clearly the current Government believes the benefits are there
– perhaps most particularly educational benefits and/or the
opportunities provided by more immediate access to the global
economy accessible through the internet.
Cons
Government mandating of specific technologies such as FTTP is
referred to in economics as ‘picking winners’. There
are risks associated with this type of market intervention. In this
case, the main risk is that the Government mandated technology will
be superseded by a superior technology at some point in the future
and the closer to the completion of the NBN that this happens, the
higher the costs.
As an example, consider a scenario where a superior broadband
access technology is created and is actively utilised in the market
place. This would likely result in substitution away from, and a
resulting under utilisation of, the initial FTTP technology. This
would likely result in a negative impact on the expected return on
investment from the NBN infrastructure.
In addition, in the context of this scenario, to the extent that
the existing Government mandate for fibre-line connections prevents
the up-take of the new technology, the benefits of that superior
technology would be forgone to some extent (an inefficient
allocation of resources).[20]
To sum, Government mandates for the use of specific technologies
are not without risk and imply to some extent that the Government
is better placed to allocate resources than the market. The
inefficiencies and risks associated with this type of action
(particularly in the absence of substantiated public good
arguments) are well documented within the field of economics where
the price allocation of resources, while not perfect, results in
more efficient outcomes than those determined by any central
planning authority.[21]
With respect to the Bill, the question as to whether the
benefits outweigh the costs and potential risks is particularly
relevant. Do the benefits from a mandated fibre deployment in
greenfield developments outweigh the risks inherent in the
Government picking fibre as the superior broadband access
technology into the future? Is there rigorous evidence to support a
position?
More broadly, in the context of the rollout of FTTP as part of a
publicly funded NBN initiative, do the aggregate benefits outweigh
the costs and the risks, and on whom should those costs and risks
be imposed?
An example of technological progress in the telecommunications
sector
On 21 April 2010, Alcatel-Lucent announced that its research
arm, Bell Labs, had successfully demonstrated a technology that
boosts the transmission speeds achievable over two DSL (copper)
lines.
In this lab test, Bell Labs achieved downstream transmission
speeds of 300Mbps over distances up to 400m (or 100Mbps at 1 km).
The company believes that the technology promises to enable service
providers to maximize the transmission capabilities of existing
copper infrastructure for years to come. In addition, an analyst
noted that Bell Labs’ test had brought a whole new dimension
to the ongoing 100Mbps debate:
The fact that existing copper loops can facilitate 300Mbps at
400 meters reshapes the whole next-generation broadband competitive
environment and will open up a wide range of new business
opportunities for traditional DSL providers.[22]
Other commentators have since cautioned against exaggerating
these results as potentially affecting the NBN landscape:
This appears to be an exciting development that could inject
some extra life into the aging copper network. Of course, fibre is
the ultimate future-proof technology that will ultimately be
upgradeable to 1 gigabit per second (Gbps) or even 10Gbps to the
user. What’s more, fibre works over distances much greater
than 1 km and is more energy efficient than DSL …. and given
the available copper and the length of the copper in Australia it
may have little to no use or in Australia.
The point of including this example here is not the feasibility
of the new technology (which looks unlikely to affect the viability
of fibre-optics in the short-term and thus the NBN); it is the
nature of technological progress in this sector. Specifically, that
if a technology that supersedes fibre-optics is eventually
developed, its development is likely to be sudden and
unforseen.
In this case, while debate centred on whether substitution to
wireless technology would make the roll-out of FTTP feasible,
copper-lines (the old technology) were made to produce data
transfer speeds that were faster than those expected from the new
fibre-line technology of the NBN (100Mbps).[23]
At the time of writing, specific public comment by
non-Government parties in relation to the Bill has been scarce.
Despite this, some parties have announced aspects of their
respective broadband policies, which when analysed, provide a
reasonable indication as to their likely position in relation to
the Bill.
Coalition
The Coalition’s broadband
policy is in direct conflict with the Government’s current
NBN initiative and thus has significant implications for the
success of this Bill in the short term and the continued existence
of the NBN Co in the event of a future coalition election
victory.
Recently announced Liberal party policy is to discontinue the
$43 billion NBN initiative in its current form:
Mr Abbott announced that if he were elected he would slash
public spending by $10 billion, and said one of the first projects
he would cut was the $43billion NBN.[24]
The Coalition believes that there are better ways to drive a
comprehensive upgrade of Australia’s broadband infrastructure
both nationally and in under-served areas. The Coalition intends to
implement a different approach (to that of the Government) and says
that it will be designed to:
Deliver better, affordable, reliable broadband services where
they are needed without a reckless waste of taxpayer’s funds,
as well as encouraging the private sector to upgrade broadband
infrastructure.[25]
To sum, the current position of the coalition makes their
support of the Bill unlikely. In addition, a coalition victory at
the next election could mean the end of the NBN initiative and the
NBN Co in their current form. Were the Bill to be passed, and the
NBN Co to be subsequently discontinued, the absence of a guaranteed
FTTP rollout could substantially alter the intended effects of the
Bill, as a complement to the current NBN initiative.
Greens
The Greens are broadly supportive
of the Government’s NBN initiative but have advocated ongoing
Government ownership of the NBN Co (and the NBN) upon completion.
In April 2010, Greens Senator Scott Ludlam stated that:
There’s a strong business case for retaining NBN Co in
public hands, and certainly not embedding an automatic
privatisation trigger somewhere in the legislation.[26]
Despite broad support for the Government’s broadband
initiative, the Greens recently refused to support the
Government’s recent Telecommunications Legislation Amendment
(Competition and Consumer Safeguards) Bill 2009 until the NBN
implementation study is made publicly available by the
Communications Minister. On 27 April 2010, Senator Ludlam stated
that:
We don't have any independent indication as to what kind of
business it's going to be, what it's going to cost, what wholesale
prices will be….We certainly won't be voting on it until
we've had a proper look at the economics of the proposal, because
it's a huge amount of taxpayers money.[27]
On 6 May 2010, the Communications Minister publicly released the
NBN implementation study[28]. This is likely to enhance Greens support for both the
Telecommunications Legislation Amendment (Competition and Consumer
Safeguards) 2009 Bill and the current Bill.
Failure to pass the Bill will mean that the installation of
fixed-line copper networks in greenfield developments is not
prohibited. In the context of the ongoing FTTP rollout by the NBN
Co, this has potential to increase the total capital costs of
housing since any alternative is likely to be more expensive than
installation of a single FTTP connection during the construction
phase.
In other words, if the Bill is not passed, regardless as to
whether:
- a fixed-line copper network is installed in greenfield
developments, or,
- in the absence of any fixed-line network, Telstra chooses to
fulfil its USO through the provision of wireless voice
telephony;
any retro-fitting of fibre-optics to the premises as part of the
NBN Co’s FTTP rollout would likely add to the total capital
cost of the new housing, above that of the installation of a single
FTTP connection during the construction phase.
The Bill has financial implications for the Government,
developers, and telecommunications providers. In relation to the
Government, the Bill’s Explanatory Memorandum states that the
administration costs of the Department of Broadband Communications
and the Digital Economy (DBCDE) will be met from Departmental
funding.
Increased costs to greenfield developers and telecommunication
providers
Typically the cost of deploying the fixed-line copper network
has been borne by the telecommunications provider with little or no
cost to the developer. The cost of providing that fixed-line
infrastructure was generally recouped by the provider via usage
charges to the household user through time.
In March 2010, Telstra announced in relation to the Bill
that:
We expect new legislation to commence from 1 July 2010 that
mandates the provision of fibre-to-the-premises (FTTP) technology
in new housing developments ... As a result, Telstra has changed
its policy regarding the installation of telecommunications network
infrastructure in greenfields developments … Where the
developer has not made arrangements to have FTTP infrastructure
installed, Telstra will no longer deploy copper cable.[29]
Where the cost of the copper line was previously met by Telstra,
the financial implication of the Bill is such that some of this
cost will now be met by the developer as indicated by
Telstra’s statement:
The decision was a response to the government's policy that
greenfields estates be wired with fibre … The higher cost of
fibre means it's not viable for us to provide fibre to the premise
without a contribution from developers.[30]
This is the main financial implication of the Bill and will have
the immediate effect of raising the total capital costs of
greenfield developments (fibre is more expensive to lay than
copper). The issue then is how the cost of the fibre deployment
will be split between developers and telecommunications providers.
Any increase in cost for developers will result in an increase in
the cost of housing as those costs are passed on to the consumer.
Similarly increases in costs to the network provider are also
passed on to the consumer via increased charges.
NBN Tasmania - indicative costs
for fibre deployment?
A recent article stated that concern in relation to the
potential cost of the NBN had been growing since Corning Cable
Systems was awarded a contract to connect 5000 homes to the NBN in
Tasmania at a cost of $38 million or $7600 each. The Tasmanian
rollout comprises mainly overhead cabling and it has been estimated
that underground cabling could cost four times as much to deploy in
some instances.[31]
If the Tasmanian experience is indicative of the cost of FTTP
connections in greenfield developments, there are implications for
the application of this Bill. Namely, that the connection costs, at
amounts substantially higher than $3000 per lot, may mean that use
of the fibre-ready provision becomes the norm, rather than
installation of optical fibre itself. In the short-term, this may
result in a large number of wireless voice connections (provided by
Telstra via its USO) and ‘fibre-ready’ infrastructure
(as opposed to fixed-line broadband connections through fibre or
copper-lines).
Further, where the developer and the telecommunications provider
cannot agree on a cost sharing arrangement, which is presumably
more likely where the connection costs are significant, the
legislation implicitly allows for no action whatsoever.[32] This means that
neither a fibre, fibre-ready or copper-line is installed.
Assuming that the NBN roll-out takes place according to
schedule, such developments could be broadband blackspots for up to
8 years, or until such time as the NBN Co rollout facilitates a
FTTP connection. In addition, any retro-fitted FTTP connections
would have a higher cost to the NBN Co than if a fibre-ready or
FTTP connection had been installed in the first instance, where
installation costs would have been lower and also shared between
the developer/home buyer and the telecommunications provider.
While there is broad support for the intent of this legislation,
namely, high speed fibre-optic broadband access in new developments
and more broadly as part of the NBN initiative, the key issues in
relation to this Bill relate to the uncertainty it creates and are
as follows.
Equity issues resulting from increased costs of new housing
The distribution of FTTP connection costs may not be equitable
with respect to greenfield and brownfield estates. FTTP connection
charges are only applicable to new greenfield developments.
Purchasers of new housing will pay this cost through higher prices.
This is in contrast to existing homes and premises where it is
planned that they will have connections to the NBN facilitated as
part of the NBN Co’s roll-out of FTTP network
infrastructure.
The burden of FTTP installation
costs
The Bill creates uncertainty in
relation to who will incur the cost of installing fibre or
‘fibre-ready’ infrastructure in greenfield developments
and to what extent. It appears likely that the costs will be shared
between the developer and the telecommunications provider, with the
developer contribution capped at $3000. Any developer costs are
likely to be passed on to consumers through the increased cost of
housing and this will in turn impact housing affordability.
Potential for broadband blackspots
There are two potential ways in which the Bill allows for
potential broadband blackspots:
1) The proposed subordinate
legislation to the Bill states that where the cost of FTTP
provision to a developer exceeds $3000 per lot or unit, fibre would
be optional and fibre-ready facilities would be the default;
and
2) The current wording of the Bill
implicitly allows for no action to be taken in relation to
fixed-line infrastructure, that is, no copper or fibre-line
connection and no fibre-ready infrastructure.
Whether only fibre-ready infrastructure is installed, or no
fixed-line infrastructure is laid, a development risks becoming a
broadband blackspot until such time as the NBN is complete and/or
the NBN Co has facilitated a fibre-line connection to the
network.
In such instances, Telstra is likely to satisfy its USO via a
wireless voice telephony connection. In addition, any retro-fitting
of fibre-optics to the premises as part of the NBN Co’s FTTP
rollout would likely be more expensive than initial installation of
a single FTTP connection during construction of the
development.
Timing of the Bill
In the absence of a legislative requirement to install
fibre-optic networks, State and Territory Governments (at the time
of writing) have less than 2 months to implement fibre-optic
installation and associated obligations for developers, if they
choose to do so.
Ownership and operation of the greenfield fibre networks
The Bill does not explicitly mandate the ownership or operation
of greenfield development FTTP networks by the NBN Co. This creates
uncertainty in relation to who will own and operate the greenfield
development fibre networks and any resulting variation in service
stemming from multiple providers, technical standards, service
quality or pricing.
Fibre-first implications
The current wording of the Bill
does not explicitly allow for the connection of alternative
technologies such as hybrid fibre coaxial Pay TV networks
subsequent to a FTTP connection.
Government mandate of specific
technology
A Government mandate for use of a
specific technology such as FTTP is referred to in economics as
‘picking winners’. There are risks associated with this
type of market intervention, particularly in the absence of any
substantiated public good arguments.
In this case, the main risk is
that the Government legislated technology will result in
inefficient outcomes and/or be superseded by a superior technology
at some point in the future and the closer to the completion of the
NBN that this happens, the higher the associated costs.
Main provisions
The main legislative changes proposed by the Bill are contained
in item 10 which seeks to insert a new Part to the
Telecommunications Act 1997 (the TA), Part
20A—Deployment of optical fibre etc. Various
preliminary matters are dealt with by the Bill, for instance items
1-7 seek to introduce various new definitions into section 7 of the
TA (the definitions section), which nearly all depend on meanings
subsequently provided for in Part 20A. Thus
building lot, building unit, fibre-ready facility, fixed-line
facility, project area, real estate development project area,
subdivision of an area of land and selling with respect to a
building lot or building unit are defined by reference to
respective sections of proposed Part 20A, while a
self-contained definition is provided in item 3,
which, presumably uncontroversially, defines an ‘optical
fibre line’ as a line that consists of, or encloses, optical
fibre.
Items 8–9A create more complex
definitions (which still partially rely on subsequent provisions of
proposed Part 20A). Item 8
proposes a new paragraph to be added to subsection 110(2) of the
TA, which defines ‘sections of the telecommunications
industry’. The new group to be defined as a part of the
telecommunications industry are those who install optical fibre
lines or facilities for the lines in the project areas for a real
estate development project (as defined in proposed Part
20A). Being a part of the telecommunications industry
attracts certain rights, privileges and responsibilities, including
participation in the establishment of industry codes and
standards.
Item 8A proposes that regulation of the design
features and performance requirements of optical fibre lines and
associated facilities be covered by subsection 113 of the TA, which
covers ‘[e]xamples of matters that may be dealt with by
industry codes and industry standards’. In proposed
paragraphs 113(pa) and (pb) the coverage of the design
features and performance requirements for optical fibre lines and
associated facilities are to be made subject to industry codes and
standards (in so far as these issues fall within the parameters of
certain sections of proposed Part 20A, for
instance whether they are within the relevant project areas for a
real estate development project as set out in that proposed
Part). When carriage services are supplied by
optical fibre lines then the characteristics of those carriage
services, and the performance requirements to be met by them, are
incorporated into the matters that may be dealt with by industry
codes and industry standards under section 113(3) (proposed
paragraphs 113(3)(pc) and (pd)). The inclusion of these
carriage service standards is only conditional upon their status as
being supplied by optical fibre lines rather than inclusion in the
definitions of particular projects, project areas and real estate
development projects as defined in proposed Part
20A.
Item 9 has the effect of clarifying that
matters dealing with the design features or performance
requirements of optical fibre lines and their facilities may be
regulated in certain circumstances. The subsection 115(1) of the TA
constrains industry codes or standards so that they have no
effect:
(a) to the
extent (if any) to which compliance with the code or standard is
likely to have the effect (whether direct or indirect) of requiring
customer equipment, customer cabling, a telecommunications network
or a facility:
(i) to have
particular design features; or
(ii) to meet particular
performance requirements; or
(b) to the
extent (if any) to which it deals with the content of content
services.
There follows a series of exceptions to these above general
rules which effectively allow the regulation of certain matters by
their inclusion in industry codes and standards. These industry
codes and standards are subject to regulation by the Australian
Communications and Media Authority (ACMA). Item 9
seeks to add another exception by providing that the regulation of
optical fibre lines and their facilities are also to be exempted
from the rule in subsection 115(1) set out above, which will
therefore enable the regulation of these matters through codes and
standards.
Section 118 of the TA deals with ACMA’s power to request
that a section of the telecommunications industry develop a
‘code’ governing relevant issues. This general power is
subject to a list of exceptions which delineate circumstances in
which ACMA must not request such a code, including situations where
the issues would touch upon privacy concerns, or would
inappropriately stipulate particular design features or performance
requirements for customer cabling or equipment or
telecommunications networks or facility (unless ACMA considers the
community benefit of such a code would outweigh the costs of
compliance). Item 9A proposes to add another
exception to section 118 which would allow code based coverage of
requirements for optical fibre lines or facilities to ‘have
particular design features; … or to meet particular
performance requirements’ when they fall within the
parameters of the real estate development projects defined in
proposed Part 20A.
As outlined above, the principle operative part of the Bill is
the insertion of a new Part 20A to the TA. The
simplified outline to be included in the Bill is a useful tool for
understanding the structure of the Bill’s changes. In summary
it explains (in proposed section 372A) that, after
the Bill’s provisions comes into operation,[33] there is a legislative
requirement that only optical fibre line and fibre-ready fixed line
facilities can be installed in land being developed according to
the Bill’s schema (essentially subdivision of land with a
view to development, and construction of multiple building units on
land – popularly referred to as greenfield developments). The
relevant projects must be covered under relevant legislative
instruments, however the Minister can also provide exemptions from
these rules in a legislative instrument.
Proposed subsection 372B(2) prohibits the
installation of any line other than an optical fibre line where a
real estate development project is occurring which involves
(proposed subsection 372B(1)):
- the subdivision of land into building lots (proposed
paragraph (a)),
- the project being covered by a legislative instrument
(proposed paragraph (b)), and
- the line is designed to provide a carriage service for the
public to end-users for whom buildings have been, will be (or may
be) constructed (proposed paragraphs (c), (d) and
(f)).
Proposed paragraph 372B(1)(e) actually exempts
from regulation the line on the customer side of the boundary of a
telecommunications network. The Explanatory Memorandum suggests
that this is necessary to ensure that customer cabling is not
inappropriately regulated.[34]
Proposed subsection 372B(4) allows the Minister
to specify, via legislative instrument, conditions in relation to
the installation of a line a project area covered by that section.
Proposed subsection 372B(5)-(6) would give the
Minister the power to exempt conduct, whether conditionally or not,
from the scope of subsection 372B(1) and hence the requirement set
down by subsection 372B(2). Proposed subsection
372B(7) provides that the Australian Communications and
Media Authority (ACMA) may be given functions or powers under the
various legislative instruments envisaged by proposed
section 372B.
Proposed subsections 372B(8)- (9) provide that
contravention of proposed subsection
(2) as civil penalty provisions, including aiding,
abetting, conspiring, counselling, inducing or procuring the
installation of non optical fibre line and/or failing to comply
with the relevant legislative instrument, or being a party to such
a breach, directly or indirectly. As a consequence, the maximum
penalty for each contravention is $250, 000 for a company and
$50,000 for an individual.
Proposed section 372C contains effectively
identical provisions to proposed section 372B,
however its scope covers the construction of one or more building
units on one or more areas of land, as opposed to
372B which involves subdivision and
construction.
Proposed sections 372CA and
372CB mirror sections 372B and
372C in most respects but have relevant
differences because they deal with situations in which fibre-ready
facilities are to be installed, rather than the actual fibre line.
The Explanatory Memorandum comments that the intention is that
[t]he fibre-ready connection requirement may be
imposed in real estate development projects where it would not be
practicable to immediately impose the fibre connection requirement
under proposed Division 2, due, for example, to the immediate cost
of installation of fibre or other considerations.[35]
The approach would
ensure that the fibre-ready fixed-line
facilities that are installed in these developments will permit
fibre to be installed at a later time in a quick and efficient
manner, at low cost and with minimum inconvenience to the
community.[36]
The two fibre-ready sections apply to different forms of
greenfields – subdivided land and newly constructed buildings
– and provide for a comparable legislative instrument regime.
The Explanatory Memorandum notes that this regime could allow the
Minister to permit the installation of fixed-line facilities other
than fibre-ready facilities where
- a particular facility other than a fibre-ready facility is
necessary for the provision of particular non-fibre lines and its
provision will not impact on the general availability of
fibre-ready facilities;
- fibre-ready facilities are also in place (e.g. a dual
provisioning approach); or
- the anticipated cost of installing fibre-ready facilities is
above an identified threshold.[37]
Proposed subsections 372CA(8) and 372CB(8) also
differ in that they establish a regime for ensuring third party
access to fixed line facilities. The two proposed sections allow
for powers to be conferred on the ACCC with respect to regulating
such access. Both of these proposed sections also provide that
regulations can give jurisdiction to a court with respect to the
regime for third party access to a fixed-line facility
(proposed subsections 372CA(9) and 372CB(9)).
All four of the central provisions of Part 20A follow the basic
template of establishing the scope of the section – i.e. the
form of greenfield development, and then prohibiting the
installation of non optical fibre or fibre-ready facilities. The
legislative instruments regime is similar in so far as the Minister
is given power to specify the scope of coverage or the conditions
that such an installation must comply with, but may also exempt,
conditionally or not, conduct or coverage issues. All the sections
allow for ACMA to be given functions and powers through legislative
instruments, with the two sections covering fibre-ready facilities
also providing for additional regulations to ‘establish a
regime for third party access to a fixed-line facility...’
which can confer functions and powers on the Australian Competition
and Consumer Commission (the ACCC). Finally all four sections
create civil penalty provisions for enforcement, with the two
fibre-ready facility sections also conferring jurisdictional power
through the ACCC to the Federal Court.
This proposed Division provides the series of definitions
referred to at the beginning of the Bill (and in the Main
Provisions). Proposed section 372D defines a real
estate development project in such a way that it must involve the
subdivision of land into lots (a process which is, in turn,
clarified in proposed section372E to include
developments where some parts of the land subdivided are not
included in the lots created, eg a road). The project must involve
either offering the lots for sale (with a view to the presumable
construction of building units) and/or the actual construction of
building units on the lots which are then to be made available for
sale or lease. Further applicable conditions may be specified in a
legislative instrument.
Proposed section 372F defines building units,
relatively straightforwardly, as an entire building where it is
intended for single occupation, or use as a ‘building
unit’ and also clarifies rules regarding situations where
part or whole of a building is to be held as a unit in a strata
title system (or similar), or a separate lease is to be held over
part of a building – these defined entities are also to be
regarded as building units.
The technical need for the legislative definitions of
‘sale of building lots’ and ‘sale of building
units’ (proposed sections 372G and 372H) may
undoubtedly become significant, however both would seem to follow a
straightforward traditional understanding of a sale—that is,
transferring the freehold or leasehold interest in the land or the
building unit.
Proposed section 372HA defines a fixed-line
facility as a facility (other than a line), which is not on the
customer side of the telecommunications network and is used to
supply a carriage service to the public. The definition of a
fibre-ready facility in proposed section 372HB is
left to be determined by legislative instrument.
Finally proposed section 372J defines supply to
the public. The definition relies on the TA’s definition of a
network unit, defined in Part 2—Network units.[38] Thus, if a line is
part of a network unit, which in turn is used as a carriage service
to the public then the line is taken to supply a carriage service
to the public.
In a change subsequent to the proposed
insertion of Part 20A to the TA, item
11 seeks to make an addition to section 25 of the
Trade Practices Act 1974. Section 25 governs the
Australian Competition and Consumer Commission’s
(ACCC’s) capacity to delegate its regulatory powers across a
range of its roles and responsibilities. As noted above,
proposed sections 372CA and 372CB give the ACCC a
role in regulating third party access to a network. The proposed
change would allow the ACCC to delegate these regulatory powers to
an individual member of the Commission.
Proposed part 2 of the Bill would simply revise
the existing definition of a civil penalty provision to include
those introduced by the Bill. Part 31 of the TA provides for
pecuniary penalties for breaches of civil penalty provisions, but
also provides that criminal proceedings do not lie against a person
only because the person has contra vened a civil penalty
provision.
It should be noted that the Bill is relatively simple in
legislative terms, but would obviously have significant
consequences. Part of the reason for the Bill’s simplicity is
that many issues are left to be resolved by legislative instrument
(instruments which will be subject to Parliamentary scrutiny and
disallowance as a matter of course[39]). The Department of Broadband
Communications and the Digital Economy has issued their
Proposed Subordinate Legislation to give Effect to Fibre in New
Developments Position Paper,[40] however proposed subordinate legislation falls
outside of the Digest’s current scope.
There is broad support for the intent of this legislation, that
is, high speed fibre-optic broadband access in new developments.
Despite this, the Bill has not been well received by interest
groups and stakeholders. This is mainly due to the uncertainty
created as a result of the Bill.
The proposed Subordinate Legislation to the Bill aims to address
some of this uncertainty. Its release however, has not produced any
substantial public support of the Bill, particularly by those
interest groups and stakeholders that were critical of the Bill in
their submissions to the Inquiry by the Senate Standing Committee
on Environment, Communications and the Arts, the Report from which
is due on 12 May 2010.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277 2419.
Brian Dalzell and Kirsty Magarey
13 May 2010
Bills Digest Service
Parliamentary Library
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