Dissenting Report by Coalition Members and Senators
NBN’s Special Access Undertaking and Wholesale Broadband Agreements
We note the withdrawal of NBN Co’s Special Access
Undertaking (SAU) to the ACCC, and the lodgement of a new SAU, is a unique opportunity
for NBN Co to reconsider the level of its planned investment and hence reduce
the ‘flexibility’ it needs to recover invested capital by increasing imposts on
Business journalist John Durie noted in an article that the
aggressive SAU terms sought by the NBN are virtually without precedent: One
member comments the amount of discretion being sought by NBN boss Mike Quigley
would make even the Telstra of old blush.”
There are at least three major problems with the NBN Co’s SAU:
The price constraints are not binding, and increased data volume
usage will lead to significant price increases. The NBN has also sought to
exempt many of its product offerings from the undertaking.
The NBN has made no service level assurances to RSPs.
There is no scope for ACCC or any other external scrutiny of NBN
Co’s planned network to determine whether it is prudent or ‘gold plating’.
The NBN Co is expected to earn a return of 7 per cent on the
amount invested in its network. Yet the Government prescribed the most
expensive possible technology for 93 per cent of the network and never permitted
NBN Co any scope to reduce its capital spending to more prudent levels where
this was possible (such as by using a fibre-to-the-node architecture where
this was an economically rational choice).
To avoid confusion with the wording of Recommendation 5 of
the main report (3.91), the minority proposes the recommendation state: “The
NBN Co Wholesale Broadband Agreements include service level assurances that allow
RSPs to meet their statutory customer service guarantees.
The minority recommends that as part of ongoing consultation
with the ACCC, the NBN Co’s instructions from Government are expanded to allow
it to explore ways to invest its capital more prudently and reduce the overall
cost of the network.
The minority recommends the Government instruct NBN Co to
submit plans for alternative network architectures with estimates of cost of
these per premise to the Productivity Commission, to form the basis of a rigorous
Migration to the NBN
We note migration to the NBN has been weak, reflecting the
fact that few applications exist to take advantage of 100mbps bandwidth and
residential households are mostly unwilling to pay any significant premium for
In Tasmania, for instance, the NBN added only 100 customers
during the past year and take-up rate is still only 18 per cent.
The NBN Co has created significant financial incentives to encourage
migration from existing networks to the NBN. The Government instructed the NBN
Co to set initial prices to be comparable to those in the market at the moment
for ADSL2+ products. Synergies Consulting notes this increases the risk
profile of the NBN business case:
“The risks of having to price to
‘meet the market’ in accordance with government expectations, are best managed
by providing NBN Co with a degree of pricing flexibility.” (Available online here,
The Government has also announced the Telecommunications
Universal Service Management Agency will “provide financial assistance so that
any reasonable connection costs” are covered for RSPs to switch voice-only
customers to the NBN if these customers did not migrate in the first 12 months
of NBN availability.
This will create a significant financial burden for TUSMA,
given for instance that Telstra charges $179 for in-home support when switching
to the NBN:
“Telstra Plus provides you with
expert help on a wide range of services not available through our standard
support services, such as networking your T- Box®, T-Hub®
to other non-Telstra devices – such as your Mac, PC, tablet, printer or game
console. You can choose over-the-phone support from $99 or in-home support from
In the 2011-12 financial year, the Department spent $20
million in advertising to ‘assist migration’ to the NBN. This amount appears
excessive and has so far produced underwhelming results, given take-up in
places such as Tasmania.
The minority recommends that the Government promptly
announces a per-premise price on payments to RSPs to smooth transition to the
NBN. It should explain how much this is likely to cost TUSMA and how much of
its annual budget this will constitute.
The minority recommends the Department explore other ways to
encourage the transition to superfast broadband. This includes less disruptive
network architectures to end users (such as a fibre-to-the-node architecture).
Given ABS figures show the group least likely to have
superfast broadband are the lowest income brackets, the minority recommends the
Department study the extent to which infrastructure-based competition
encourages price competition by wholesale providers, and sets an anchor for
entry-level pricing. The Department should explore policies to encourage
continued competition of this form.
The Department review the efficiency of its spending
campaign in promoting the NBN to assess its efficiency.
Rollout of the NBN
The minority notes the desirability of providing affordable broadband
upgrades to all Australians as soon as practicable, particularly to households
in areas with poor broadband access.
Under the upgrades promised by the NBN during the nest 12
months, 60 per cent of suburbs are in Labor electorates compared to under 35
per cent in Coalition electorates. In NSW and Victoria, Labor suburbs will
account for 80 per cent of the rollout.
The minority notes that the NBN Co has not sought to
investigate which suburbs are currently underserved nor is it attempting to
upgrade such suburbs as a matter of priority.
The minority notes a detailed rollout schedule, uploaded on
the NBN Co website on June 15, which includes ‘The date that NBN Co expects to be ready to connect end
users from Access Seekers within this Rollout Region.’
The schedule appears to show the NBN fibre will pass 236,900
‘brownfields’ households by June 2013 and 20,995 ‘greenfields’ households. This
is a total of 257,895 premises in addition to the approximately 20,000 premises
already passed by fibre.
This contrasts with the forecast in the Corporate Plan
released in December 2010, which forecast the fibre network would pass 950,000
brownfields households by June 2013 and 319,000 greenfields households by June
2013. Therefore the NBN fibre rollout over its first three financial years will
achieve only 24 per cent of its publicly stated brownfield target and 7 per
cent of its greenfield target.
Perhaps the most concerning area of delay is in the area of
greenfields. As of January 1, 2011, the NBN Co had only 110 active services in
greenfields areas. More recently, the NBN Co announced that it will not renew
its relationship with subcontractor Fujitsu, pointing to significant delays in
The minority recommends the Government investigate ways of
speeding up the rollout by using existing infrastructure where possible and deploying
different architectures (such as fibre-to-the-node) where appropriate. The
Department should undertake a study of cost and timing of deployment in
comparable economies of various architectures which should inform a rigorous
cost-benefit analysis of options for broadband upgrades.
Given the NBN Co is experiencing a lull in activity in
greenfields fibre installation, the Department should revisit policy proposals
to promote competition in greenfields areas and encourage private providers to
invest in fibre networks.
Advertising on the NBN
The Department has provided $20 million in the current
financial year to “improve public understanding, address misconceptions and
provide updated information about the National Broadband Network” (Budget Paper
The NBN Co revealed in Senate Estimates that its own total
advertising spend in 2011-12 was $8.12million including $3.659 million during a
four week period for the three-year rollout announcement.
Given that the NBN Co revealed in Senate estimates, it has
less than 4,000 customers on its fibre network, these figures appear
The Government and NBN Co conduct a review of its
advertising spending for effectiveness and measure this against uptake and
other relevant metrics. Expenditure should be reduced unless it can be
demonstrated as providing value for money.
The NBN Co should refrain from advertising Stage One of the
fibre rollout in suburbs and regional areas which have not been included in the
Stage One schedule.
Malcolm Turnbull MP
on behalf of the Coalition Members of the Joint Committee on the National Broadband Network