Chapter 3 Competition and Regulatory Issues
During the course of its first review period, the committee was
presented with competition and regulatory issues arising from the
implementation of the Government’s National Broadband Network (NBN) policy. A
number of these matters were raised in the committee’s First Report and have
been updated to take into account additional information received, and recent developments
reported in the Government’s 23 September 2011 NBN rollout Performance Report.
This chapter includes discussion on the competition and regulatory
issues pertaining to: the Binding Definitive Agreements between the NBN Co Limited
(NBN Co) and Telstra and the NBN Co and Optus, Telstra’s Structural Separation
Undertaking (SSU) and draft Migration Plan, the NBN Co’s Special Access
Undertaking (SAU) and Wholesale Broadband Agreement (WBA).
In addition, issues such as competition and pricing concerns raised by
Retail Service Providers (RSPs) and the engagement of private sector equity to
fund the NBN are also discussed.
Binding Definitive Agreements with Telstra and Optus
On 7 April 2009, the Government announced the establishment of NBN Co to:
design, build (over an eight year period) and operate a
‘wholesale-only national high-speed broadband network for all Australians’
which would be capable of delivering speeds of up to 100 Megabits per second
(Mbps) at a cost of up to $43 billion. The purpose of the NBN
would be to connect all premises across Australia, to improve service delivery
in areas such as education and health, and more broadly drive productivity
growth, thereby enhancing Australia’s international competitiveness.’
The Government’s 2009 NBN policy (including the establishment of
NBN Co) was intended as a micro economic reform measure designed to
improve the competitive dynamics of the Australian telecommunications sector. Structural
reform would be through the required separation ‘between the infrastructure
provider and retail service provider.’ In 2009, the Government stated that the
structural separation nature of the reform would mean ‘better and fairer
infrastructure access for service providers, greater retail competition, and
better services for families and businesses.’
By implementing structural reform of the telecommunications industry,
the NBN policy would have a significant impact on Telstra as the highly
integrated and dominant industry incumbent.
Structural reform of the telecommunications industry would include:
Telstra’s structural separation, draft migration plan, and the commercial
agreements between NBN Co and Telstra.
Subsequently, the Government introduced three pieces of legislation
which were passed in 2011 and are the foundation for the Government’s NBN
policy. These are the: Telecommunications Legislation Amendment (Competition
and Consumer Safeguards) Act 2011 (Cth), (the CCS Act), the National
Broadband Network Companies Act 2011 (Cth), and Telecommunications
Legislation Amendment (National Broadband Network Measures- Access Arrangements)
Act 2011 (Cth).
The CCS Act contains a ‘package of legislative reforms aimed at
enhancing competitive outcomes in the Australian telecommunications industry
and strengthening consumer safeguards’. These reforms include:
n ‘addressing Telstra’s
vertical and horizontal integration’ by requiring Telstra to either voluntarily
structurally separate or be subject to mandatory functional separation;
n ‘streamlining the
access and anti-competitive conduct regimes, and strengthening consumer
safeguard measures such as the Universal Service Obligation, the Customer Service
Guarantee and priority assistance; and
n measures to improve
The aims of the legislative framework implementing the NBN were also
incorporated into the Government’s Statement of Expectations (SoE) delivered to
NBN Co in December 2010.
Prior to passing of the CCS Act and associated NBN legislation, following
a year of negotiations between NBN Co, Telstra and the Government, on 20
June 2010, the parties entered into a non binding Financial Heads of Agreement
The FHA outlined ‘the high level terms and conditions for the timing of
the decommissioning of Telstra’s copper and Hybrid Fibre Coaxial (HFC) networks
(subject to certain exclusions).’ The FHA would enable the ‘progressive
migration of customer services from Telstra’s copper and subscription
television cable networks’ to the NBN, and thereby ‘deliver ... structural
reform of the telecommunications sector.’
In this way, the FHA also foreshadowed how Telstra would participate in
the rollout of the NBN.
The FHA was estimated to be worth around $11 billion
to Telstra and would reduce overall
NBN rollout costs by:
n ‘giving NBN Co access
to Telstra’s existing infrastructure such as underground ducts’, and pits and
manholes, lead in conduits, backhaul including use of dark fibre
and, ‘exchanges and transmission.’
n ‘Enabling decommissioning
of the copper access network as the fibre network is rollout out.’
n ‘Allowing for the
progressive migration of customer services from Telstra’s copper and
subscription television cable networks’ to the NBN.
Just over a year later, on 23 June 2011, following further
negotiation between NBN Co and Telstra, the parties arrived at a Binding
In addition to the signing of the Telstra Agreement, on 23 June 2011, NBN Co
signed a Binding Definitive Agreement with Optus.
The NBN Co’s Binding Definitive Agreement with Telstra (the Telstra
Agreement) consists of four documents which, together with the
structural separation of Telstra, form the basis of Telstra’s participation in
assisting with the rollout of the NBN.
Completion of the Telstra Agreement is a key assumption made under the
NBN Co Corporate Plan and provides for the decommissioning of the Telstra
network, with significant existing Telstra infrastructure made available to the
NBN Co ‘at the prices set out in the FHA.’
The NBN Co has stated there are three main components of the Telstra
Agreement which are beneficial to the NBN Co, Telstra and the Australian
taxpayer. These components are:
n It grants NBN Co
access to Telstra facilities and infrastructure over a minimum period of 35
years, ensuring that the fibre optic component of the National Broadband
Network, serving 93% of premises, can be rolled out efficiently and avoids
n It provides for the
progressive disconnection of Telstra’s copper and Hybrid Fibre Coaxial (HFC)
customers (other than HFC pay-TV customers) and NBN Co will be Telstra’s
preferred fixed-line network;
n In addition, NBN Co
and Telstra have negotiated interim arrangements for immediate access to
The NBN Co stated that the benefit of the Telstra Agreement in regard to
the NBN rollout would be to avoid duplication of existing infrastructure,
reducing the cost of NBN build and so reducing the risk of delays and potential
disruption to local communities. The NBN Co commented:
The outcome, we believe, is good for taxpayers and good for
the broader community. We will, in making use of Telstra's facilities, avoid
duplicating existing infrastructure. The deal reduces our costs to build the
NBN, it reduces the risk of delays and, very importantly, it reduces potential
disruption to local communities.
Through the decommissioning of its copper network and HFC capability,
the Telstra Agreement would also assist Telstra to ‘progressively structurally
Under the Telstra Agreement, there are nine ‘conditions precedent’ (CP) which
must be either satisfied or waived for the Telstra Agreement to be completed.
The CP are outlined under the Implementation and Interpretation Deed
(IID) which is the first of the four documents which form part of the Telstra
The CP for completion of the Telstra Agreement are:
n ‘approval by each of
Telstra’s and NBN Co’s shareholders of the proposed transaction;’
Competition and Consumer Commission (ACCC) ‘acceptance of a [structural
separation undertaking] (SSU) and approval of a Final Migration Plan in a form
approved by Telstra and NBN Co and those documents come into force in
accordance with the Telecommunications Act;
n the [Telecommunication
Universal Service Management Agency] (TUSMA) Agreement and the Information
Campaign and Migration Deed being entered into by Telstra and the Commonwealth in
a form acceptable to NBN Co;
n the Commonwealth
amending legislation or establishing other arrangements to implement its Greenfields
policy in a form acceptable to Telstra and NBN Co;
n the Commonwealth
introducing legislation considered necessary or desirable by the Commonwealth
and NBN Co to facilitate NBN Co’s rollout, in a form acceptable to Telstra and
n separate Australian
Tax Office private tax rulings relevant to each party that confirm the tax
treatment of elements of the transaction being acceptable to Telstra and NBN Co
n if NBN Co notifies
Telstra of a change to its stated intention, as at the execution date, to roll
out fibre to 93% of premises in Australia at the execution date, Telstra being
satisfied that the change does not adversely affect Telstra;
n the parties agreeing
to an initial plan establishing a program for the handover of specified
infrastructure under the ISA over the course of NBN Co’s Rollout; and;
n any other matters
that the parties agree to be a condition precedent. Telstra has requested that
NBN Co confirms that NBN Co has arrangements in place to ensure the cessation
of supply by Telstra of certain products occurs in a non-discriminatory way.’
Approval of the Telstra Agreement by Telstra shareholders occurred on
18 October 2011, with the only CP remaining to be satisfied, the ACCC acceptance
and approval of Telstra’s SSU and Draft Migration Plan.
Telstra’s Structural Separation Undertaking and Draft Migration Plan
The structural separation of Telstra is designed to deliver greater
competition across the telecommunications industry by replacing Telstra as the
dominant market player and owner of telecommunications infrastructure with the
NBN, a wholesale-only, open access network.
Telstra’s structural separation is defined by the ACCC as ‘the legal
separation of Telstra’s assets and activities into separate corporate entities
with entirely separate owners/shareholders.’
The CCS Act establishes the framework ‘within which Telstra can’ choose
to ‘structurally separate and migrate its customer base’
or if it does not structurally separate, be subject to functional separation.
Structural separation includes:
n ‘commitments by
Telstra to cease the supply of specified services over networks under its
control from the designated day – which is expected to be the day on which the
construction of the new wholesale-only NBN will be concluded; and
n Equivalence and
transparency measures regarding access to Telstra’s key wholesale services in
the period leading up to the designated day.
Telstra’s draft migration plan outlines how and over what period
‘Telstra will cease supplying copper and most HFC services – including
wholesale services (where they are supplied) – as part of the migration of the
If the structural separation option is not followed, functional
separation would require Telstra to:
n ‘Conduct its network
operations and wholesale functions at arm’s length from the rest of Telstra;
n Provide the same
information and access to regulated services on equivalent price and non-price
terms to its retail business and non-Telstra wholesale customers; and
n Put in place and
maintain strong internal governance structures that provide transparency and
reassurance for the regulator and access seekers that equivalence arrangements
While processes for either Telstra’s structural or functional separation
are provided for under the CCS Act, the Government’s preferred option is for
Telstra to structurally separate and ‘accordingly the’ CCS Act ‘gives priority
to a genuine structural separation process over the functional separation
On 29 July 2011 and 24 August 2011, as required under the CCS Act,
Telstra lodged its SSU and Draft Migration Plan respectively,
with the ACCC for review.
The Telecommunications Act 1997 (Cth) requires the ACCC to
undertake consultation on Telstra’s draft migration plan and while it is not a
requirement for the ACCC to do the same for Telstra’s SSU, given ‘the
significance of the SSU in facilitating structural reform’, the ACCC has
undertaken a similar consultation process for the SSU.
In assessing and accepting the SSU, the ACCC would have to ‘be satisfied
that competition and consumer interests are supported by the specific reforms
that have been proposed’, ... ‘particularly during the progressive transition
to the new industry structure.’ Should the SSU and draft
Migration Plan be accepted and approved by the ACCC, this would provide various
protections ‘from competition laws to facilitate’ Telstra’s structural
On 30 August 2011, the ACCC released its discussion paper on Telstra’s
SSU and draft Migration Plan for comment with submissions sought by
27 September 2011.
In its discussion paper, the ACCC stated that, as the SSU did not
include a compliance plan for structural separation, the SSU would not be
accepted in its present form. The SSU would need to be resubmitted by Telstra
‘in a form that fully complies with the legislative requirements.’
The ACCC’s preliminary view of the draft Migration Plan was that it accords
with all of the statutory criteria.
The ACCC outlined specific matters of concern, a number of which were
serious enough for the ACCC to form the view that these matters would ‘militate
against ACCC acceptance of’ the SSU. These are:
n There needs to be a
clear and enforceable commitment to an ‘equivalence of outcomes' that enables
wholesale customers and Telstra’s retail businesses to gain access to key input
services of equivalent quality and functionality
n clarification of the
mechanisms that would ensure the proposed equivalence and transparency measures
remain fit for purpose for the duration of the interim period.’
n The inclusion of
‘arrangements between Telstra and NBN Co that include the parties’ ability to
vary the arrangements without further scrutiny by the ACCC.’
While generally supportive of the structural reform of the
telecommunications industry, Optus expressed concern about the equivalence and
transparency of the Telstra SSU. In outlining its concerns about the SSU, Optus
One of the principles we have been saying for a number of
years around telco reform is that you must have the ability to have equivalence
of access or equivalence of outputs between Telstra's retail customers and its
wholesale customers. In other words, and this is one of the principles we put
forward some time ago, we would ideally like to see a contract between Telstra
network services and its retail arm which was in some way comparable to the
contract they had between us or access seekers and Telstra wholesale, and then
a level of transparency around those contracts. That would enable a number of
things: No. 1, price comparability, which is one of our major concerns; No. 2,
operational performance capability in terms of provisioning of services,
billing, fault rectification and a range of other things that go to the heart
of making sure there is an equivalence of outputs to access seekers and Telstra
retail and a level of transparency; and, No. 3, a level of scrutiny by an
independent regulator with powers to enforce compliance of that equivalence and
Internode was also supportive of the structural reform of industry, but
also expressed concerns about the SSU and stated:
Under Telstra's SSU, which effectively replaces the existing
regulatory regime, competitive providers like Internode will be worse off. We
will have significantly less or in fact almost no recourse to the ACCC, and
under that SSU Telstra will largely get to set all of the prices and access
terms by which they deign to provide wholesale access to the old copper
network. This is access that will be required for at least the next decade,
which is in fact about as long as the entire industry has been providing DSL.
So we are about to lock in a regulatory regime for the next decade yet in the
course of the last decade we have seen massive shifts in broadband service,
particularly DSL service. We have seen the retail prices spiral downwards. We
have seen speeds ramp up. Now we are going to lock it down at, we assert, an
access cost that is somewhat worse than our current wholesale pricing from
Internode was of the view that Telstra’s market dominance would continue,
and that smaller telecommunications providers such as Internode would be worse
...they are likely to cost us more but they leave us largely
at the mercy of Telstra, who can set the access pricing and the terms and
conditions under which they provide the pricing, provide the only forum in
which we can complain about that pricing and provide almost no transparency as
to how they actually came up with the pricing.
Internode also stated that it had discussed its concerns with the ACCC.
Vodafone’s main concern about the SSU (as discussed with the ACCC) is
that there is an inadequate separation between Telstra’s wholesale and retail
businesses. Vodafone explained:
In particular, there are a number of aspects and approval
processes within Telstra Corporation, as opposed to their retail and wholesale
arms, that are still retained by Telstra Corporation and have a significant
bearing on both wholesale and retail operations. For example, the Telstra
Corporation part of the business still retains the pricing approval process for
both retail and wholesale, and we think that that does not really lend itself
to an adequate amount of separation.
Vodafone was also concerned that there be regulatory oversight of market
behaviour to ensure consumers are not take advantage of when new competition is
introduced into the telecommunications market.
Agreement Negotiation, Review and Completion Timeframes
Signing of the Telstra Agreement represents ‘the conclusion of nearly
two years of detailed negotiations’ between NBN Co, the Government and Telstra.
The NBN Co Corporate Plan makes the assumption that the Telstra Agreement
would be completed and approved by the ACCC by 30 June 2011.
While the Telstra Agreement was arrived at prior to the end of June
2011, the timeframe for the completion of the Agreement has taken longer than
expected as the two CP of: Telstra Shareholder approval and ACCC consideration
and approval of Telstra’s SSU and draft migration plan had not occurred within
In addition, the termination arrangements (under the IID) for the
Telstra Agreement provides that ‘if the CP are not satisfied or waived by
5 pm on 20 December 2011, then the IID, unless varied by prior agreement,
will automatically terminate’, and the three remaining documents forming the
Telstra Agreement ‘will not come into force and effect’.
The NBN Co stated that if the 20 December 2011 timeframe for satisfying
all the CP is not met, then:
...the interim access provisions will continue in force for a
period of 10 years to support Telstra infrastructure in use or ordered by NBN
Co at that time. Those interim access provisions include a process the parties
will follow to deal with any continuing need NBN Co has for access to Telstra
infrastructure on expiry or early termination of the provisions.
The ACCC’s acceptance and approval of Telstra’s SSU and draft migration
plan is a CP of the Telstra Agreement, without which the Agreement cannot be
In reference to whether the ACCC would complete its review of the SSU
and Draft Migration Plan before 20 December 2011, it stated:
The resources are considerable. We have an entire branch
dedicated to the consideration of the structural separation undertaking. On the
time frames, I am going to give you the same answer that Rod Sims, our
chairman, gave ... in Senate estimates last week which was that we are moving
as quickly as we can. The issues are important ... but we give no guarantee as
to when they might be concluded.
In an update on the status of the Telstra Agreement, the NBN Co stated, following
ACCC approval of the Telstra SSU and draft migration plan, Shareholder
Ministers must endorse the Agreement, but before this occurs Telstra will need to
resubmit its SSU to the ACCC. Telstra is expected to take place in November
2011. In the event of a variation to the ‘material value’ to the Telstra
Agreement as a result of any changes made, Telstra shareholders will be given
an opportunity to vote on any changes. The NBN Co stated:
The ACCC has to accept Telstra's SSU and approve the
migration plan and then NBN Co's shareholder, the Australian government, has to
endorse the deal before the agreements become binding. Before these approvals can
happen, as Telstra noted in its advice to the ASX, Telstra has to submit a
revised SSU, which it expects to do in coming weeks following its current
discussions with the ACCC.
While Telstra expects that the issues raised by the ACCC can
be addressed without a material impact on shareholder value, it has indicated
that if any material change does occur, shareholders will have an opportunity
to vote on such changes. In any case we will not know the outcomes and what
they mean for the shareholder approval process until these issues are resolved.
While the focus of industry has been on Telstra's transparency and equivalence
arrangements set out its SSU, the definitive agreements are also the subject of
scrutiny by the ACCC.
Against this background, until all the conditions precedent
have been met and the final agreements are available to the Telstra and NBN Co.
boards and to the government, no further documentation regarding agreements can
When asked whether any delay to the ACCC process for consideration of
the Telstra SSU and migration plan would be a cause of concern for the NBN Co,
Mr Mike Quigley, CEO stated:
...it would cause me concern. I am keen to have the deal done
so we can get on with it and have some surety. We are working at the moment
under an interim agreement. That interim agreement is not the final agreement.
There are certain restrictions on it. We are not free to do all the things that
we would like to do to get on with the job.
While the Binding Definitive Agreement between NBN Co and Optus (the
Optus Agreement) was not included in the NBN Co Corporate Plan, the $800
million value of the Agreement to Optus ‘is financially beneficial to NBN Co
resulting in an improvement in NBN Co’s internal rate of return when compared
to the...Corporate Plan.’
The Optus Agreement provides that as the NBN is progressively rolled
out, Optus will decommission its HFC network and migrate its customers to the
NBN. The rate of decommissioning HFC networks and the migration of customers
will mirror the NBN rollout.
Optus stated that under the Agreement, its HFC network will be
decommissioned with the exception of the part of the network used for Optus’
fibre component for its mobile backhaul and other corporate customers.
The Optus Agreement, similarly to the Telstra Agreement is subject to
approval by the ACCC, and confirmation of tax treatments. At the time of
writing, neither the ACCC nor the Australian Taxation Office (ATO) have issued
decisions on the agreement.
Future Third-Party Ownership of Optus’ HFC Network
At the committee’s hearing on 24 October 2011, there was some doubt as
to whether Optus could sell its HFC network to a third party and whether that
third party would then be able to offer broadband services over the Optus
network. Optus stated:
The general principle is no; we have effectively made a sale
of our HFC network and capacity to NBN Co. and agreed a migration strategy
across to NBN Co. So the principle is fairly clear.
Additional Agreement Issues
Non Disparagement Clause
Both the Telstra and Optus Agreements contain a clause which precludes
Telstra and Optus from marketing wireless services on the basis of comparable
or equal performance standards as provided by an NBN service. The NBN Co
described these clauses as ‘an agreement to not present [the wireless network]
as a replaceable—substitutable—service’.
Optus explained the practical interpretation of the clause for it and
Telstra and stated:
...the key is that [neither Telstra nor Optus] can make
claims around the performance standards of wireless broadband versus an NBN
Importantly, this does not prevent either company from marketing
wireless services. Under its Agreement, Optus commented that it:
... cannot go out and undertake certain marketing activities
... which, for want of a better term, will be sledging type activities—saying
that the wireless service is superior to the fixed broadband service.
The NBN Co clarified what is permissible under the Agreements and what
is prohibited under the non disparagement clause and stated:
I do not think anywhere in the clause there is the word
'criticism'. It says that the wireless services are not substitutable for fibre
today. That is what we are trying to make clear: that they are not
While there is provision in trade practices legislation to deal with
misleading comments which could be made in regard to marketing of wireless
services, the NBN Co stated that the purpose of the non disparagement clause is
to prevent in the future any delay which may be experienced through litigation.
Optus stated that while the non disparagement clause provides no more or
less than what is required under current trade practices legislation and that
it will not prevent Optus from marketing its wireless service. Optus commented
We have not seen that as anything more or less than what will
be required under trade practices legislation today— that we cannot make claims
about the performance of our wireless network being superior in a way that it
is not. We will still continue to aggressively market wireless broadband
throughout that period.
The NBN Co also stated that the effect of the clause would be to protect
shareholder interests and secure the NBN investment. The NBN Co commented:
All [NBN Co is] trying to do is write a clause into a
document that protects the shareholders' interests. As I have said repeatedly,
we are all in favour of as much mobile penetration as can possibly happen
because we are seeing an increasing number of mobile devices in use driving up
our usage on fixed line networks which makes our business case a little more
The NBN Co also stated that more broadly, the non disparagement clause
component of the Telstra and Optus Agreements provides a ‘constraint [that] is
only one that makes good sense’. Further, as taxpayer funds are being used to
enable decommissioning of the copper network and structural separation, ‘it
makes perfectly good sense to make sure that Telstra continues to use the fixed
The Department of Broadband, Communications and the Digital Economy (DBCDE)
added that the non disparagement clause component of the Telstra and Optus
Agreements is under consideration by the ACCC. The DBCDE also ‘expressed
confidence that the ACCC would treat [these clauses] as they have throughout
the [SSU] process, as being a particularly important outcome.’
Retraining Funding Deed with Telstra
Under the Telstra Agreement, the Government will provide $100 million to
Telstra to assist it in the retraining and redeployment of its staff which are affected
by reforms to the structure of the telecommunications industry.
The Retraining Funding Deed (RFD) sets out the terms on which the Government
will provide this funding to retrain certain staff over an eight year period.
Concluding on 20 June 2019, the RDF requires Telstra to give priority to
retraining staff who currently work on the copper and HFC networks, including the
wholesale copper workforce and the direct field support workforce. Telstra will
give priority to retraining its employees in NBN related technical, process and
Payments to Telstra will commence after it submits to and receives
approval from the DBCDE for an initial training plan and budget.
The training plan must cover a three year period and include an outline of
training targets which will set out the skills required and the training
courses to be developed or refreshed.  Telstra must also
provide six monthly reports to the Government on progress against training plans,
and a more detailed annual report which includes report on these matters.
Under the RFD, Telstra must consult with stakeholders in respect of the
development of training plans and use funds to develop and deliver training
courses that facilitate the following objectives:
n to support the
availability of an appropriately trained workforce for the NBN; and
n to establish a
retraining arrangement for Telstra staff who may otherwise have faced
redundancy due to the rollout of the NBN.
In contrast to the Telstra Agreement, the Optus Agreement does not
involve a component of public grants for retraining of Optus staff. Outlining
the different objectives of the two agreements, the DBCDE stated:
The negotiations with Telstra were designed to develop both
something that was in the public interest and had value for them. We were not
at any point negotiating with Optus on a similar basis. So the Optus
negotiation is entirely conducted between NBN Co. and Optus. The Telstra
negotiation was effectively a tripartite arrangement. It involved the
government negotiating as well as NBN Co. with Telstra. It had a different
objective, which was the migration, the overall agreement, to structurally
separate and migrate. So the purpose behind obtaining sufficient value for
Telstra to agree to do that, in a public policy sense, was not just the ability
to retrain workers—which we think is quite an important public policy interest
in its own right—but was the structural separation outcome from the ability for
Telstra to accept a certain price for a certain set of functions in order to
free up its network for a competitive-neutral telecommunications industry for
The negotiation with Optus was an NBN negotiation entirely of
a commercial nature around migration, so the ... retraining for Optus, would clearly
not be a matter for Mr Quigley. It would be a matter for ministers to consider
should they believe there is a need to do so.
Special Access Undertaking
Under trade practices law, the NBN Co will voluntarily lodge a SAU with
the ACCC. The SAU ‘is intended to provide regulatory certainty to an investor
in relation to the issues covered by the SAU and for the term of the SAU.’ The
SAU is also designed to provide market certainty ‘about the way NBN Co will
engage and operate for the term of the SAU.’
The SAU ‘will cover key price and product aspects of access to NBN Co’s
fibre, wireless and satellite networks’ as well as a number of ‘non-price terms
and conditions.’ The NBN Co Corporate Plan states that the following product
aspects are proposed to be addressed in the SAU:
n ‘Descriptions of the
wholesale Layer 2 services and products that NBN Co intends to supply;
n Initial fibre,
wireless and satellite wholesale product sets and some conditions of supply;
n NBN Co’s product
development, variation and withdrawal processes.
n NBN Co proposes to
include the following price aspects in the SAU:
principles and methodology;
pricing for key wholesale products;
price regulation for certain wholesale products.
n Detailed long-term
constraints on total revenue able to be earned by NBN Co, using a Regulatory
Asset Base methodology;
n Cost prudency
commitments in relation to the Regulatory Asset Base;
n NBN Co’s
non-discrimination commitments; and
In July 2011, the NBN Co released a SAU discussion paper and the third
version of its WBA for industry comment. The SAU discussion paper:
n ‘describes the key
commitments that NBN Co intends to make in its SAU’,
n outlines the
‘proposed approach to pricing of key “Price Controlled Offers”, the operation
of NBN Co’s proposed Regulatory Asset Base, and long term revenue constraint
n ‘Providing an ongoing
role for the ACCC over the term of the SAU, to ensure the commitments made in
the SAU continue to remain relevant as the industry evolves.’
The NBN Co sought Industry feedback by 19 August 2011.
In its Corporate Plan, the NBN Co stated that the finalisation of the
SAU was dependent on:
n ‘key policy matters
such as the number and location of Points of Interconnect [POIs]
and the required approach to uniform national wholesale pricing.’ and
n A preference to wait
until proposed NBN legislation was enacted.
At the committee’s 24 October 2011 hearing, the NBN Co stated that it
was still in discussions with the ACCC in regard to the SAU, which were ‘going
well’ and that it would publish its SAU as soon as it was able to.
Further the NBN Co stated:
We are hoping that [the SAU] will be lodged shortly. We are
still in discussions with the ACCC on that. I flagged at estimates that we have
shifted certain parameters around that agreement. I am looking to simplify it
somewhat. That drafting is underway now. I continue to have discussions with
The ACCC recently stated that the NBN Co has indicated it intends to
provide an SAU to the ACCC for consideration in November 2011.
Timeframe for ACCC Consideration
The ACCC is required to assess the NBN Co’s SAU against ‘reasonableness
criteria’ as provided for under trade practices legislation. These criteria
include the: ‘promotion of competition,
encouraging economically efficient investment in and use of infrastructure, legitimate
business interests of access providers, interests of access seekers and direct
The statutory timeframe for ACCC consideration and either rejection or
acceptance of the SAU is six months, ‘subject to extensions of time and
The ACCC commented that its consideration of the NBN Co SAU could take
between six and twelve months depending on the suitability of the SAU lodged
with the ACCC and the comments made around it.
When asked about the consequence of ACCC rejection of the SAU, the ACCC
Provided we have a regulated service—which we should have by
that stage—if the commission's position differed from what was in the SAU, it
would be open to access seekers to ask the commission to make an access
determination in ways that, in all likelihood, reflected areas that the
commission had concerns with. The commission could take a fairly swift reactive
move in the event it found an undertaking unacceptable.
Wholesale Broadband Agreement
The NBN Co’s Corporate Plan 2011-2013 provides for development of a WBA
which the takes the form of an agreement between NBN Co and a RSP which
purchases wholesale broadband services from the NBN Co. The WBA sets ‘out the
complete terms and conditions of access to all of the services and products
being provided over’ NBN Co’s ‘fibre, wireless and satellite networks’.
More specifically, it sets out:
..the arrangements for the delivery of commercial services
over the NBN encompassing such matters and products and price, service levels,
technical information, credit policies and future product development.
After a ten month industry consultation process,
ahead of moving into the commercial launch of its services in October 2011, on
28 July 2011, the NBN Co released version three of the WBA.
In addition to being the contractual vehicle for the supply of its
services to customers, the WBA will have the regulatory purpose, as required
under legislation, of ‘declaring’ NBN Co’s services.
In the period leading up to the release of version three of the WBA, the
NBN Co completed two separate public consultation processes, public workshops,
and performed ‘customer deep dives’, involving more than 100 hours of
face-to-face discussions. Of its WBA industry consultation process, the NBN Co
This engagement has allowed NBN Co to respond to customer
concerns in a manner that it believes balances the legitimate interests of end
users, customers and the objectives of the NBN.
As the WBA ‘guarantees equivalence’ in NBN Co’s dealings with RSPs, the
WBA will be an identical document for all RSPs. Until the final version of the
WBA is approved, NBN Co has signed interim agreements or a Standard Form of
Access Agreement (SFAA) with already participating RSPs in NBN trial sites.
The SFAAs put in place will be replaced with a WBA once it has been finalised.
Optus was of the view that there were ‘a number’ of the terms and
conditions in the WBA that had direct implications for its pricing policy, in
particular liability issues. Optus commented that the WBA is a ‘very complex
document’, and it is taking ‘some time’ to work through it.
Optus stated that NBN Co has put its pricing into the market in terms of
expected wholesale rates and is billing RSPs on an interim basis, reflecting some
of the retail prices that have already been released. Although some RSPs have
chosen to release their prices with caveats, Optus was not prepared to release
its prices until it had finalised terms and conditions under its WBA with NBN
Co. Optus commented:
There are a number of terms and conditions in that contract
which have direct implications for our pricing policy. We are very keen to
release our pricing, as you can imagine, but we also know that we have to work
out on what basis the contract with NBN Co will be finalised. We have talked
about some of those issues in the broad. Issues around liability in particular,
are ones that we have to factor into our cost pricing and therefore our pricing
Further, Optus stated that an important factor in discussing the WBA
with NBN Co was that the ACCC had to agree to the terms of the provision of NBN
Co’s wholesale services to RSPs. Optus advised that this process had not yet
Internode stated that a
transition is underway towards commercial operations for the NBN. While
Internode’s customers have had a ‘paid-for’ ADSL service and a free trial
service from NBN Co, it is now charging for its services. While there is no
contractual certainty of supply of services until a WBA is signed, Internode
was of the view that it is ‘inconceivable that NBN Co would withdraw these
services’ in the interim.
Internode raised concern about RSPs signing an interim agreement with
the NBN Co on the grounds of differing concessions between individual
agreements. Internode stated:
What concerns me about the wholesale broadband agreement is
that they have actually offered us a wholesale broadband agreement and asked us
to sign it. But of course it is subject to the proviso that all of the retail
service providers will end up with the same agreement. So what I would really
like to understand is how, if we signed it and Optus, for instance, managed to
win some concessions in the agreement, then that change in the wholesale
broadband agreement would be applied to the agreement we have.
Internode stated that it had ‘a high degree of confidence’ that there
will be ‘very few changes’ to the final WBA that will materially affect the
cost of using the NBN and that the WBA will need to be settled by the end of
Vodafone Hutchison Australia (Vodafone) stated that the SAU and WBA establish
the NBN Co’s ‘fundamental commercial relationships’. Vodafone stated that both
documents will ‘evolve’ over time, and that the NBN Co has made a range of
commitments about how it will consult with industry as these documents change.
Further, Vodafone was of the view that the regulatory oversight of that
evolutionary process is important, and that this point needs to be clarified
about the assessment process about to be undertaken by the ACCC.
Recourse to ACCC
While the ACCC has a role in assessing the NBN Co SAU, it does not have
a role in assessing the WBA. The ACCC raised concerns that the five year term that
was being applied to interim agreements ahead of a finalised WBA would mean
that RSPs would not have recourse to the ACCC under these agreements. The ACCC stated
that the SAU should set the framework under which the WBA could be entered
into. The ACCC commented:
...we did have a concern about was the term of the access
agreement that NBN Co. was seeking to have access seekers enter into which was
a five-year access agreement. That poses a concern largely because of the
hierarchy stack, if I can out it that way, that exists in the legislation.
...The stack effectively places access agreements at the top of the pyramid and
then a cascade below that has access to terminations and access undertakings—it
might be the other way round, but various determinations by the commission.
That is intended—and the commission have no issue with this—to encourage
agreement between access providers and access seekers. The
difficulty is that, in the event that people enter access agreements, clearly
they have no recourse to the commission.
The clear intent always was that there would be a framework
set by an access undertaking that would be considered and, if suitable,
accepted by the commission. That access undertaking would be the framework
under which access agreements were then entered into.
The ACCC raised its concern with the NBN Co which responded by extending
its trial agreements until the end of November 2011. The ACCC preference is
that only ‘substantive agreements’ be entered into, but that where this is not
possible, where access seekers encounter difficulties under interim agreements,
they have recourse to a ‘regulatory backstop’ with the ACCC.
In addition, in response to industry concern about regulatory
uncertainty in the absence of the SAU, the NBN Co recently announced that it
...reduced the initial term of its WBA to 12 months and
established a bilateral and multilateral Contract Development Process to
further enhance the long term WBA whilst the SAU is being considered by the
Competition and Pricing
In the committee’s First Report, issues were raised in relation to how
the implementation of the NBN would affect competition at various levels in the
telecommunications industry and more broadly the Australian economy.
The main competition issues mentioned in the First Report were the
impact on competition of: the structural separation of Telstra, the wholesale,
open access structure of the NBN, pricing of access to the NBN, how the use of
different broadband technologies may affect the cost and price of the NBN, and
the ACCC’s decision to increase the number of POIs from 14 to 121.
The focus in the First Report was how NBN access pricing and how the
cost of physical capital was impacting on competition among RSPs, especially
The RSPs have again expressed concern about the impact on competition of
access pricing under the NBN, the absence of competition in backhaul in some
areas and the impact of the ACCC’s decision to increase the POIs from 14 to 121.
Points of Interconnect
The ACCC stated that its decision that the POIs be increased from 14 to
121 was intended to create greater competition for RSPs. Part of the ACCC’s
decision-making process for determining POI numbers involved taking into
consideration: existing infrastructure use, existing competition and the
long-term interest of end-users.
The ACCC’s initial determination on POI numbers was based on maintaining
‘competition between the backhaul providers’ so that ‘there was not an over build
by NBN Co or existing infrastructure providers.’ This would need to be balanced
by ‘competition between transmission providers’ to each POI.
The ACCC implemented its approach by:
...recommending that competition principles be adopted and
then worked with NBN Co. to come up with a mechanism, proposed by NBN Co.,
which would do two things—firstly, select points of interconnect where there
was already competition between at least two backhaul providers and, secondly,
ensure that there was a reasonable prospect that those providers would still
engage in competition once the POI was built and that there was an element of
overlay which allowed for an actual network architecture to be constructed.
Through this process, the ACCC proposed that there should be
approximately 120 POIs. The ACCC then asked for industry comment on its POI
proposal and based on comments received, the ACCC increased the number of POIs
to 121. Since then, following negotiation with Telstra, there have been ‘a few
minor variations’ to the location of POIs. Location changes reflect ‘where
there is power, water and space in Telstra exchange buildings. The outcome ....
is that Telstra will provide 111 exchange buildings and that ten new buildings
are being built by NBN Co.’
Internode stated that POI locations were chosen arbitrarily and only
‘the potential’ for competitive backhaul, rather than the ‘actual physical
presence of’ competitive backhaul was taken into account by the ACCC. Internode
explained the barrier created for RSPs providing services in regional areas
where there is limited competitive backhaul present and stated:
The barrier or challenge for existing regional service
providers is that they have all the overheads of connecting to the NBN and all
of their existing overheads of running their existing network, which they are
already operating on very squeezed margins because as soon as they look even
vaguely viable Telstra starts marketing up against them, as is their right. But it means that, in the build-up to the NBN, those regional
service providers face significantly increased costs as a dual network
operation overhead, which is likely to spell the end for most of them. It is
also worth noting there are relatively few regional-only service providers.
Internode added that the problems it had encountered with the absence of
competitive backhaul in regional areas meant ‘a huge amount of uncertainty as
to what it will cost’ Internode to provide a service in regional areas and so
may not choose to do so.
In response to Internode’s concern, the ACCC stated:
Regardless of who provides backhaul, somebody incurs the cost
of the backhaul from regional areas to metropolitan points of presence. In
coming up with our advice on points of interconnect, we had to make a choice:
should that be monopoly provided by NBN Co. or should that be competitively
provided by the five competitors. ... Our advice was that competition would
yield the best outcomes. There will still be a cost of
transmission between metropolitan areas and regional areas. The only difference
between whether there are 14 points of interconnection or 121 is whether that
cost is incurred by NBN Co. or incurred by competitors who are seeking to
provide services on a competitive basis to [RSPs] such as Internode.
The ACCC explained that it understood that there are trade-offs in the
advice it provided on POIs, but that the basis of its decision was on ‘a belief
in competition that existed providing the best outcomes.’
The ACCC welcomed the NBN Co’s announcement of a wholesale charge rebate
in response to the concern raised by RSPs such as Internode above.
The rebate is intended to ‘make it cheaper and easier for broadband
service providers to start offering services to consumers and businesses over
the NBN.’ The rebate is provided ‘on capacity charges in the early days of the
The rebate is for ‘the wholesale charge for the first 150 Mbps per month
on its Connectivity Virtual Circuit until there are 30 000 premises passed in a
connectivity serving area, which connects’ to a POI.
Australia On Line was of the view that the NBN Co’s announcement of
rebates to assist RSPs ‘would not materially lower the prohibitive costs of
servicing ... customers via the NBN.’
Australia On Line, similarly to Internode, also stated that it would be
more difficult under the increased number of POIs to provide services to rural
and regional areas. Australia On-Line stated:
It will cost Australia On Line 15 fold more to service
its existing national customer base via the NBN than is currently the case.
This increase represents a dramatic imposition of mountainous barriers to entry
to the national retail broadband. This 15 fold increase in costs is a
direct result of increasing 17 fold the number of POI that are required
to connect nationally via the NBN compared to that required to connect
nationally to the ADSL network. It currently requires 7 POI to connect
nationally to the ADSL network and the NBN requires 121 POI to connect
nationally to the NBN. In the event that NBN Co rebates all our NBN connection
charges, it will still cost Australia On Line 14 fold more to connect
nationally via the NBN than is currently the case via the ADSL network. The
cost to connect to the NBN with NBN rebates would be $647,350 per month for
National connection which is still 14 fold more than our current cost of
$45 773 per month for national connection to the ADSL network.
Both Internode and Australia On Line stated that the higher cost of
providing a broadband service in regional and remote areas means less choice
and so less overall competition for this service in these areas.
Loss of Infrastructure
Internode also raised the issue of the sunk cost it has incurred
resulting from lost infrastructure through NBN overbuild. This situation will
be similar for most RSPs who have invested in infrastructure to enable them to
provide a service. As previously outlined, Telstra and Optus will be
compensated for their loss of infrastructure in the NBN overbuild through the
Telstra and Optus Agreements.
Internode outlined its total investment in infrastructure and was
concerned that in addition to not receiving compensation for its lost
infrastructure, would have to pay to remove its existing infrastructure from
Telstra exchange buildings. Internode stated:
Our investment in DSLAMs per exchange runs between $100,000
and $200,000 per exchange site—some even more. We have 200 sites. We have
invested a lot in this infrastructure ... [and once the NBN comes through] ... Then
it is obsolete. There is some concern that we may actually have to pay Telstra
fees in order to remove it from the exchange building.
Basic Package Pricing
The NBN Co’s pricing of the NBN for RSPs consists of: Access Virtual Circuit
(AVC) and Connectivity Virtual Circuit (CVC). The basic price offered by the
NBN Co for an RSP to access services from the NBN is $24 per month across
all three technologies (fibre, wireless or satellite) at a downstream speed of
12 Mbps. On top of this is a CVC charge of $20 per Mbps which adds
approximately $1 per ‘average end user for a 12/1 Mbps service with current
average data usage.’ The NBN Co is expected to lower its pricing as it expects
that ‘increased usage ... will be adjusted on a yearly basis to reflect take up
rates, average speed increases and usage increases.
The RSP would then charge a price in addition to the $24 (plus the CVC
charge) to take account of any over heads, charges and taxes, with the
inclusion of a profit margin.
Table 3.1 shows the NBN Co’s pricing of access to the NBN for RSPs.
Class 4 Access Virtual Circuit Peak Information Rate Charges per month
Downstream/ (PIR Mbps)
Upstream / (PIR Mpbs)
*Note: AVC Pricing for Fibre at $24 per month from
Financial Year 2012 to Financial Year 2019, steadily decreasing to $23 per
month by Financial Year 2040.
Source NBN Co Corporate Plan
2011-2013, p. 101.
Five RSPs have released their pricing under the NBN. Two of the larger
RSPs, Telstra and Vodafone have not yet released any prices for NBN products.
Internode was of the view that NBN Co’s usage fees for RSPs is too high,
with the overall pricing geared toward providing a quick return to the
Government’s investment in the NBN.
Prior to the release of the NBN Co’s rebate on capacity charges, (which
Internode stated has resolved the issue it raised about barriers to entry for
small RSPs), Internode was concerned that it would not be able to afford access
for high speed end users and that the CVC charge of $20 per Mpbs is arbitrarily
set. In regard to the CVC price Internode stated:
... the charge for the CVC at $20 a megabit is a fairly
arbitrary number. It is not really in line with the experience of network
operators to date where you achieve an economy of scale as the volume of
traffic increases. NBN Co. are proposing to charge all access seekers,
regardless of scale, this $20 a megabit fee. That does not recognise that, over
a fairly short time frame, end users are likely to use the network more and as
a result require more capacity and that is actually going to end up driving
costs up for retailers. But for operators like Internode—we have 200 exchanges
with our own DSLAM equipment, which is the equipment that is the other end of
the ADSL service—and operators like Optus, who are in the same boat, largely our
backhaul networks, particularly around the capital cities, are fixed cost. As
the traffic on those networks rises, our costs remained largely static, so in
fact our cost per megabit to use those networks falls because the traffic rises
and the cost stays the same.
Internode is offering NBN access packages ranging from $49.95 per month
for its basic 12 Mbps service to $165 per month for a terabyte. Internode
explained its pricing strategy and stated:
Our entry level service at 12 megabits with 30 gigabytes of
included data costs $30 for the phone service plus $20 for the internet
service. So it is a $49.95 entry level service, which we think is a fairly
reasonable and affordable price point for most people. Our entry level 100
megabit service, which also includes a phone line, is effectively $30 plus
$45—again, for a 35 gigabyte usage allowance. To put that in perspective, the
average Internode customer uses 18 gigabytes a month. So that entry level
service is more than sufficient for the average customer. It is worth noting
that there are outliers to that 18 gigabytes. There are some people who
download an awful lot and we provide services that allow them to do that. In
case somebody wants to ask the question: we do offer a true terabyte service
for $165 a month. We find that most people wanting that are actually business
customers. A terabyte is a huge amount of data.
Initially, Internode had released a higher priced package, which it
lowered once the NBN Co provided a rebate on capacity charges for the first
150 Mbps per month on the CVC.
Optus stated that it had waited to announce its pricing packages under
the NBN as it had been working on its WBA with the NBN Co which would have an
impact on Optus pricing. Optus stated:
We are working through the implications of a couple of
things, the main one being the wholesale broadband agreement with NBN Co. There
are a number of terms and conditions in that contract which have direct
implications for our pricing policy. We are very keen to release our pricing,
as you can imagine, but we also know that we have to work out on what basis the
contract with NBN Co. will be finalised. We have talked about some of those
issues in the broad. Issues around liability in particular are ones that we
have to factor into our cost pricing and therefore our pricing for customers.
On 9 November 2011 Optus announced seven pricing packages which would
commence in NBN trial sites from 21 November 2011. Packages start at $39.99 per
month for 40 Gigabytes (GB) of data when bundled with an Optus post paid mobile
service and rise to $129 per month for up to 1000 GB of data.
Vodafone stated that it had not announced its pricing packages under the
NBN, as it was in trial mode and ‘focused on the operational and technical
aspects of the NBN’.
The ACCC stated that the cost of usage fees and the impact on small
RSPs, especially the provision of NBN services in regional remote areas would
be within the ACCC purview in its consideration of the SAU.
Voice Only Services
Historically, the telecommunications industry has been dominated by the
Public Switched Telephone Network (PSTN). The rollout of the NBN will decrease
the use of the PSTN with more telecommunications being delivered via high
quality Voice over Internet Protocol (VoIP) services. The NBN Corporate Plan
indicates that this transfer from old technologies to newer services will
equate to a decline in voice revenues but will be substituted by increasing
broadband revenue noting, ‘business models continue to shift from toll calling
charges to access charges’.
The Corporate Plan also indicates:
The significant investment by Internet Service Providers in
Digital Service Line Access Multiplexers and other equipment in order to
provide broadband services over copper is expected to be redirected to content,
service differentiation and value added services over the NBN, fuelling the
development of new applications and innovation that will drive consumer demand.
There are concerns that, under NBN Co’s wholesale packages combining
voice and data services, RSPs will only provide voice services through a
combined package. NBN Co stated:
...that anyone in Australia who currently accesses a fixed
voice-line service will continue to be able to do so. Customers in areas that
we serve with the NBN fibre network will continue to have access to voice-only
services over a Telstra copper line, up until the NBN fibre service is rolled
out in their area. After the NBN fibre is rolled out, the agreement with
Telstra means that customers will be able to access a voice-only service over
this new infrastructure. ... Customers in [the wireless and satellite
footprints] will continue to have access to fixed voice line services over a
Telstra copper line. This is the arrangement where in that last notionally 10
per cent the copper service will remain.
After the NBN rollout, the prices at which Telstra can offer these
services will remain subject to specific retail price controls. Telstra’s
carrier licence conditions require it to offer low-income packages for access
to a fixed line telephone service. Similarly, the Low Income Measure Assessment
Committee will continue to work with Telstra to ensure low-income products are
offered. Further, NBN Co’s commercial agreement with Telstra provides that
customers accessing special services will continue to have those services
provided at no increased cost on the fibre network. The NBN Co commented:
When it comes to providers other than Telstra, I understand
there is no obligation upon them to provide discounted services to people on
low incomes. This obligation remains solely with Telstra.
Since the committee’s First Report, iPrimus has released a voice-only
service priced at $24.95 per month, using the fibre network infrastructure. The
NBN Co commented on such services, arguing that:
... while there may not be RSPs other than Telstra offering
services to those who qualify for low-income assistance, there will still be
voice-only options at reasonable rates.
The Australian Communications Consumer Action Network (ACCAN) was
concerned that there were not more than one voice service provider announcing
pricing. The ACCAN stated:
It does concern me, but I do get some hope that Primus
announcement is the first of more. To be perfectly frank, in that regard it is
keeping prices to an amount, which we are pleased about. Of course we will be
tracking it very carefully over time to see whether or not they stay at that
level. We have assurances from NBN Co. that over time prices will come down. We
will have to see if that happens.
The ACCC stated that it would monitor the provision of voice only
services offered as this service is important to ‘a substantial proportion of
the Australian public.’ The ACCC stated:
I know this has been the subject of some discussion between
[committee members] and NBN Co. I have seen [NBN Co] point [the committee]
to some initial offers from retail service providers that include the provision
of voice only services at rates broadly equivalent with what are currently
offered in the market by such products as Telstra's HomeLine Budget. It is an
issue we will certainly keep under examination, because I would accept that the
provision of voice only services is important to a substantial proportion of
the Australian public.
Universal Service Obligations
The objective of the Universal Service Obligation (USO) is to ensure
basic voice telephony and payphone services are reasonably and equitably
accessible to all Australians. As a universal service provider (USP), Telstra
is required to ensure that its services meet this obligation.
The Telecommunications Legislation Amendment (Competition and Consumer
Safeguards) Bill (TLA Bill) was presented on 20 October 2011 to amend the
regulation of Telstra following reform of the telecommunications industry and
the establishment of the NBN Co. The TLA Bill received royal assent on 10
The Explanatory Memorandum to the TLA Bill stated there are difficulties
with USO requirements. It stated that:
..current requirements imposed on the primary universal
service provider (currently Telstra) are imprecise and difficult to enforce.
Seeking to overcome these difficulties, the Telecommunications Legislation
Amendment (Competition and Consumer Safeguards) Act 2010 (Cth) (TLA Act) provides
for the Minister to determine the minimum performance benchmarks which USPs must
meet to fulfil their responsibilities. Further, it specifies maximum periods of
time for new connections, fault rectification and reliability standards.
Under the TLA Act, the Minister has the power to issue written
determinations providing rulings and performance standards for the provision,
maintenance and location of payphones. There must be public consultation and
notification of proposals to remove payphones. Those who may be adversely
affected by such a proposal may request the Australian Communications and Media
Authority (ACMA) to direct the USP not to remove that service. Matters which
ACMA must consider when making such a direction are also specified in the TLA Act.
Under its licence conditions and the USO, Telstra is required to provide
discounted phone-line rental services. The ACCAN stated that the current price
for this service is $20.95 per month but is soon to be increased to $22.95 per
month. Telstra also
offers other services including pensioner discounts, a bill assistance program,
and sponsored access providing telephony services for people who seek shelter
within emergency accommodation. Generally supportive of these services, Ms
Teresa Corbin, Chief Executive Officer of ACCAN stated:
We have been on the record for
some time as saying that, whilst we really welcome these measures and they are
very valued, particularly by people who provide emergency assistance for people
in financial hardship, we would like these services to be expanded to be
broader than just Telstra. At the moment a low-income consumer does not have a
choice. They have to go to Telstra if they want to access these benefits.
Telecommunications Universal Service Management Authority
On 23 June 2011, the Government and Telstra agreed on a package of
measures that ‘will ensure basic universal telecommunications service standards
during and after the NBN rollout’.
As part of this package of measures, the TUSMA will be established to
assume responsibilities for administering the USO and other public interest
services. From 1 July 2012, the TUSMA will ensure:
n ‘all Australians have
reasonable access to a standard telephone service;
n payphones are
reasonably accessible to all Australians;
n the ongoing delivery
of the Emergency Call Service by Telstra;
n the ongoing delivery
of the National Relay Service;
n that appropriate
safety net arrangements are in place that will assist the migration of
voice-only customers to an NBN fibre service as Telstra’s copper customer
access network is decommissioned; and
solutions will be developed as necessary to support continuity of public
interest services (i.e. public alarm systems and traffic lights)’.
The Telecommunications Universal Service Management Agency Bill 2011 (TUSMA
Bill) was introduced into the House of Representatives on 2 November 2011.
The TUSMA Bill is part of a package of legislation: the Telecommunications
Legislation Amendment (Universal Service Reform) Bill 2011 (Universal Service
Reform Bill) and the Telecommunications (Industry Levy Bill) 2011.
The TUMSA Bill’s Explanatory Memorandum provides that the structural
separation of Telstra and the changes to the telecommunications industry will
also require the service delivery arrangements for the USO to transition to a
model where the Government will contract with service providers for the supply
of these important services.
The TUSMA Bill:
n provides for the
establishment of TUSMA as the statutory agency that will have the
responsibility for the effective implementation and administration of service
agreements or grants that deliver universal service and other public policy
n sets out TUSMA’s corporate
governance structure and reporting and accountability requirements;
n provides for the
Minister, subject to the scrutiny of Parliament, to set the standards, rules
and minimum benchmarks for TUSMA’s contracts and grants; and
n sets out arrangements
for consolidating the two current USO and National Relay Service industry levy
regimes into a single regime to contribute funding towards TUSMA’s costs.
Under the Universal Service Reform Bill, the Minister may permit USO
regulatory obligations to be progressively lifted from Telstra subject to a
number of preconditions being met in relation to Telstra’s contractual and
regulatory compliance and performance. Legislative
responsibility will be placed on TUSMA to ensure the service agreements or
grants that it has in place effectively deliver public interest policy
At the Senate Environment and Communications Legislation Committee
hearing on the TUSMA Bill, the Minister for Broadband, Communications and the
Digital Economy stated:
TUSMA will also have a role in implementing safety net
arrangements for migration of voice-only customers from Telstra’s copper
network to the NBN in fibre areas.
The DBCDE stated that under the new USO regime, the USO standards that
are currently in place will be maintained and any impact of these standards
will be through TUSMA, jointly funded by industry and the Government.
The Minister for Broadband, Communications and the Digital Economy
provided information on the projected costs of TUSMA’s operation:
... for the first time Government will also be making a
substantial contribution towards TUSMA’s costs and delivery of key
telecommunications public interest safeguards to provide a smooth transition to
industry. The budget contribution will be at least $50 million in 2012-13 and
2013-14 and then $100 million each financial year thereafter.
The DBCDE also commented that less would be spent on delivering the USO
over time as there are structures and incentives in place for continued
improvement. The DBCDE stated:
You may well pay less, because
there are specific provisions there to encourage change. There will be a
technology review at 10 years but there is also a proposition that the parties
will continue at any point in time [to discuss] how to more efficiently deliver
a USO at an earlier point than 10 years, which cannot be unreasonably rejected.
We have structures and incentives in place ... to encourage this.
The cost of continuing USO delivery under new USO arrangements is $290
The Senate Environment and Communications Legislation Committee is
currently inquiring into the legislative package.
Pricing, Affordability and USOs
The ACCAN was concerned that under the newly emerging telecommunications
environment, affordability of basic services would decrease, thereby increasing
the digital divide. The ACCAN stated:
Currently our assessment is that the entry level offers over
the NBN are comparable to what is available in the market today and download
speeds will be improved. ... The problem is that we do not want to increase the
digital divide for people on low incomes. People who have a problem affording
the internet now, probably will continue to do so. 
To address the potential for any increase in the ‘digital divide’, the
ACCAN proposed a broadband low-income measures scheme, that is:
... somewhat akin to the low-income measures for phone
services that exist now and which Telstra is required to provide. We are
thankful that the government and NBN Co have assured us that the low-income
measures for phone services will continue at the same price.
Private Sector Equity Engagement
In Chapter 2 of the First Report, the committee addressed funding of the
NBN. The First Report stated
that the Government:
n intended the NBN be
jointly funded through public and private sector investment,
n expected to divest
itself of its interest in NBN Co within five years of the completion and
operation of the NBN.
On 20 December 2010, the Government estimated the total capital
expenditure for the NBN at $35.9 billion, with the Government expected to
contribute $27.5 billion in rollout equity. The peak funding
requirement for the project is estimated to be $40.9 billion. The Government
stated that it would fund its investment in the NBN through the Building
Australia Fund, and the issue of Aussie Infrastructure Bonds to the public.
On 22 June 2011, the Government and NBN Co entered into an equity
funding agreement, whereby the Government provides assurances to NBN Co that it
will provide equity funding to NBN Co until 30 June 2021, unless the agreement
is terminated earlier. The Government is expected to provide funding sufficient
to meet the forecast of expenditure outlined in the NBN Co Corporate Plan. The
total funding pursuant to the agreement is capped at $27.5 billion, excluding
any amounts payable in the event of termination. As at 23 September 2011, a
total of $1.362 billion in equity has been made available to NBN Co.
The committee undertook to examine whether, given Part 3, Divisions 2
and 3, of the National Broadband Network Companies Act 2011 (Cth) (the Companies
Act), there are provisions for the Government to attract private equity during
the construction phase of the NBN, thereby enabling an earlier return to
As prescribed in Division 2 of Part 3 of the Companies Act,
privatisation of NBN Co is expected to occur after:
n The Minister for
Broadband, Communications and the Digital Economy declares that the NBN is built
and fully operational.
n The Productivity
Commission (PC) has concluded an inquiry into the NBN.
n The PC‘s report has
been referred to and reported on by a Parliamentary Joint Committee on the
ownership of NBN Co.
n The declaration by
the Minister for Finance and Deregulation, that conditions are suitable to sell
NBN Co, has not been disallowed by either House of the Parliament,
If these conditions have been met, the Finance Minister may then declare
that conditions are suitable ‘for the entering into and carrying out’ of a
scheme for selling NBN Co.
In relation to the equity agreement between the Government and NBN Co,
the Government stated that its investment provides market certainty and
certainty for NBN Co to ‘enter into the long term commercial contracts needed
to deliver the Government‘s NBN policy objectives.‘
The committee sought information on whether it would be in the national
interest to bring forward the timeframe for private equity engagement. The
DBCDE advised that the Implementation Study undertaken by McKinsey &
Company/KPMG noted that private equity should not be introduced before
privatisation, as it would be too expensive and constrain the Government’s
ability to get its policy and regulatory settings right before allowing private
ownership. It would also lead to a substantial distraction for management, both
for initial transactions and in an ongoing basis. This applies to both cash and
any proposals to sell assets in return for equity.
The NBN Co Corporate Plan contemplates private equity in the context of
debt funding with 2015-16 the first opportunity for this to occur. The Companies
Act provides for the sale ‘within five years’ of the Government’s interest in
the NBN once it is fully built and operational, subject to the conditions for
such a sale.
Cost/Benefit and Capital Structure
The committee asked what would be the cost/benefit to the economy of
bringing forward the introduction of private equity. The DBCDE advised that the
McKinsey & Company/KPMG Implementation Study concluded that use of private
equity to fund the NBN would be more expensive than use of government equity.
Under the Companies Act, the Commonwealth must retain total ownership of
the NBN Co, until certain provisions of the Act are satisfied.
The reasoning underpinning this finding was that Government was better able
to manage public sector risk, than a mix of both public and private sector risk.
The committee also asked what determining the ‘optimum capital
structure’ for NBN Co would entail, and how this process could be undertaken.
The DBCDE advised that, in accordance with the Governance Arrangements for
Commonwealth Government Business Enterprises (GBE) of June 1997, in relation to
financial governance, each GBE should have a target optimal capital structure.
This is the combination of financial liabilities and equity used to fund the
assets of the GBE, agreed annually between the directors and Shareholder
Ministers in the corporate plan consultation process.
The committee asked about the equity agreement between the Government
and NBN Co, the review process and any variations to equity requirements since
the formation of NBN Co.
The DBCDE stated that funding for NBN Co will be reviewed annually, as
part of the corporate planning process. As a result of a review, the Government
may either terminate the equity funding agreement, or vary the annual or total
equity funding commitment to NBN Co, in accordance with the most recently
endorsed corporate plan.
The DBCDE also advised that NBN Co’s Corporate Plan, sets the basis of
its equity requirements. The NBN Co Corporate Plan provides that total
expenditure for the NBN is estimated to be $35.9 billion. This is less than the
Government’s original $43 billion estimate, partly due to the Telstra
Agreement. The 2013-2015 Corporate Plan will be the basis for NBN Co’s equity
In its First Report, the committee noted that NBN Co had not provided
information, or had not answered questions, on commercial-in-confidence
grounds. Such gaps in available
material had limited the scope of the committee’s inquiry. Similar experiences
have also affected the gathering of evidence for this report.
On several occasions, the question of access to, or disclosure of,
commercial-in-confidence material by parties involved in the rollout of the NBN
was discussed at public hearings.
The DBCDE commented on the nature of commercial-in-confidence material,
and the interests involved:
... commercial-in-confidence is not just a matter for the Government
or even for NBN Co as a government-owned instrumentality to say that it will or
will not give the committee access in those circumstances. We would have to
bring Telstra into this as well. That said, everything we have done to date has
been designed to maximise the transparency of documents. ... We have attempted
to make these things as transparent as we can. I see no reason why that
attitude will not continue, but we would have to consult with Telstra to be
sure that they too were satisfied.
The DBCDE undertook to examine the relevance of the public interest test
in assessing what material should be considered commercial-in-confidence.
Telstra’s Structural Separation Undertaking
The committee notes the information it has received regarding the
Telstra and Optus Agreements including Telstra’s SSU and draft migration plan,
and review of these documents by the ACCC.
The committee is concerned about a number of the issues raised by
industry groups in relation to the equivalency and transparency considerations
arising from the Telstra SSU. The committee understands this issue has been
raised as a point of concern with the ACCC during the course of its review of
the SSU, and prior to the release of its SSU discussion paper.
In addition, the committee understands that ACCC approval of the Telstra
SSU is a condition precedent for the completion of the Telstra Agreement, and
ACCC approval must be given by 20 December 2011. The committee understands
parties are continuing to discuss issues as they arise. Further, the committee
understands that the ACCC has dedicated considerable resources to its review of
the Telstra Agreement and, while it has not guaranteed to hand down its
decision within a specified timeframe, the ACCC has stated that it is working to
conclude its consideration as quickly as possible.
Non Disparagement Clause in the Telstra and Optus Agreements
The committee understands the non disparagement clause included in the
Telstra and Optus Agreements prevents Telstra and Optus from marketing its
wireless product against the NBN for periods of 20 and 15 years respectively.
The committee understands the effect of the non disparagement clause
would be similar to the immunity which is afforded under trade practices
The non disparagement clause appears to try to inhibit Telstra and Optus
from competing against the NBN. Optus has, however, stated that this clause
will not prevent it from aggressively advertising its wireless services.
The NBN Co stated that the intent of the non disparagement clause is to
protect shareholder and taxpayer investment by avoiding any delay which may be
experienced from litigation for possible breach of trade practices law in the
event the proposed clause was not included in either of the Agreements.
The committee understands the ACCC is reviewing the terms of both the
Telstra and Optus Agreements and awaits the ACCC findings on this matter.
Special Access Undertaking
The NBN Co’s SAU (while a voluntary undertaking by NBN Co) is an
important document which will include the key price and product elements of NBN
access, as well as including non price terms and conditions.
The SAU is also the framework which will set out the pricing and non
pricing parameters which will impact on the WBA. It is important that the SAU
be lodged with the ACCC for its consideration before any WBAs are entered into
between the NBN Co and RSPs.
Wholesale Broadband Agreement
The WBA sets out arrangements relating to NBN commercial service
delivery by RSPs. Lodgement of the SAU is important to the WBA as the SAU sets
the framework that will enable RSPs to enter into WBAs with the NBN Co with
Concerns have been raised about RSPs signing interim agreements for a
five year term because, while, as there is no SAU in place, these RSPs have no
recourse to the ACCC if they encounter difficulties as result of the conditions
they have signed up to in interim agreements.
In response to industry concerns surrounding regulatory uncertainty in
the absence of a SAU, the NBN Co has announced that its interim agreements will
have a 12 month term.
The NBN Co has indicated its intention to lodge its SAU with the ACCC
for consideration in November 2011.The committee is of the view that the NBN Co
should finalise its SAU and lodge it with the ACCC for assessment without
Competition and pricing for Small Retail Service Providers
The committee again received evidence about the ACCC decision to
increase the POIs from 14 to 121. The committee noted the evidence it received
on the impact of this decision on small RSPs to provide services in regional
and remote areas, where there tends to be either limited or absent backhaul
The committee also understands that in early August 2011, the NBN Co
announced it will provide a rebate on capacity charges to alleviate the kind of
barrier to entry concerns that were raised by small RSPs.
Basic Package Pricing
The committee notes that only a hand full of RSPs have released NBN
pricing packages, with the cheapest of these packages starting at around $35
per month delivering 12 Mbps of data.
The committee acknowledges that, while this price is comparable to the
current cost of packages, the price may still be too high for low income households
to gain access to the NBN. The committee also understands from the NBN Co
Corporate Plan, that in time as take up of NBN services increases, the cost of
these services is likely to decrease.
The committee is unaware of how the NBN Co arrived at its Connectivity
Virtual Circuit (CVC) charge, and suggests the calculation of the CVC charge be
explained and communicated to industry stakeholders by the NBN Co.
Voice Only Service
Under existing Universal Service Obligation (USO) arrangements,
universal service providers are legally obliged to provide access to telephony
services. Although they will continue to do so under the reformed USO arrangements,
concerns were raised that voice only pricing plans under the NBN were not being
offered more broadly by RSPs. Similarly, there are concerns that RSPs are
choosing to bundle services and offer pricing on packaged services rather than
a stand-alone voice only service. If consumers are only able to access bundled
packages, parts of the Australian community may be disadvantaged should they
wish to access voice services only.
The committee understands the ACCC will monitor voice only services as
it is an important issue which impacts on a potentially large number of
The committee aims to avoid situations where it might form a view that
relevant material was being withheld because it might be
commercial-in-confidence. It believes that resolution of what items can be
considered validly as commercial-in-confidence would assist in the examination
of the rollout of the NBN. The committee noted the DBCDE’s undertaking to
examine the public interest test to assess whether material is commercial-in-confidence.
The committee is yet to receive the DBCDE’s advice on this question.