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Opinion "Communicate, Collaborate, Innovate"
Issue: 18/08
Issues in creating a Fibre Future – ATUG’s Regional Communications Conference
May 14, 2008

ATUG’s Regional Conference is on in Canberra next week, 20-21 May at the War Memorial. One of the key topics for discussion will be Australia’s Fibre Future. Under the terms of the NBN Request for Proposals, this may be the last chance for an open dialogue between industry and end users for some time. If you’re interested in the Fibre Future join us in Canberra

To register please Click Here
Program updates are available here

A recent OECD paper "DEVELOPMENTS IN FIBRE TECHNOLOGIES AND INVESTMENT" provides a financial model of a FTTH-network. The costs are significant and the monthly costs per subscriber are highly dependent upon penetration rates.

The substantial costs involved raise questions as to the level of competition which will emerge in the market. Sharing of costs, especially the civil engineering costs and wiring of buildings, can have benefits and reduce investment risks.

The role of the government in the roll-out of these networks can be in three ways. The role of a stimulator is defined here as removing the barriers that may impede the investment and roll out in new networks. The role of producer is defined as actually investing in new networks and the role of regulator is limited to the government’s role as a telecommunications regulator trying to guarantee a competitive marketplace.

The full paper is available here. The following is a short extract to give ATUG members an overview of the issues which are being considered in the NBN Regulatory issues submission due on 25th June.

ROLE OF THE GOVERNMENT

Whether or not governments will need to play an active role and to what extent will depend on the local situation and will require a policy decision.

In general governments should remove barriers to entry and to investment, should facilitate a cost effective roll out, ensure that new services can develop, leave it to the market to the greatest extent possible to develop networks and markets, provide regulatory certainty and be vigilant in achieving a competitive marketplace for networks and services.

Stimulator

There are several areas where governments could, if necessary, help to facilitate roll-out of networks in a neutral manner without giving an advantage to either incumbents or new entrants. In order to reduce the costs of rolling out and operating networks governments could facilitate:

  • Establishing co-operation between the owners of multi-dwelling units and telecommunications companies. Local governments or government-owned utilities often own ducts which cross under roads, etc. Granting access to these facilities to operators might decrease costs for building new networks.
  • Decreasing costs of repaving, administrative fees etc. leveraged by the local governments.
  • When building new neighbourhoods governments can incorporate the roll out of empty ducts throughout the site, together with other infrastructures, like sewers.
  • Whenever governments open up roads and sidewalks for repair, providing new utility infrastructure, etc., they could allow network operators to add network infrastructure at costs.
  • When new networks are built governments can try to ensure greater co-ordination by operators to roll-out networks at the same time.
  • In general governments should refrain from subsidising the roll-out of one network in a region unless there is clear evidence that no private investment is ready to invest in that region. If governments do subsidise one network to roll-out they should require that the network become accessible under equal conditions to other networks and service providers.
  • Local governments can bundle their demands for new networks with the demands of companies to either procure a customer owned network or enter into an agreement with an existing network operator. It is important that the terms of these agreements enable competition on a services level and do not grant one operator a monopoly over those participating in the bundled demand.
  • If governments are the initial customer helping to launch a new network, they should aim for this network to be open to other networks and service providers or make sure they do not pay a disproportionate amount as the initial customer.

Regulator

New fibre-based networks will pose new challenges for regulators.

All networks have business models that are sensitive to roll-out costs, population density, penetration rates and therefore show significant first mover advantages and a bias toward existing networks on a local level.

Various technological choices may influence regulators abilities to regulate after the networks have been built. It is therefore important for regulators to research how new technologies will influence the markets and how to best stimulate competition and balance consumers interests with the interests of network and service providers. Some points that will need to be taken into account:

  • Wireless networks may not be a viable alternative for fixed networks in delivering high bandwidth to households. They will be important in many ways as a complement…. and could play a role as a competitive constraint against hybrid and all-fibre networks. Government policies should reflect this.
  • Regulators will have to be aware that network owners may want to leverage their position in one market to decrease competition in another market. For instance by denying existing and new wireless networks access to (new) wired networks.
  • When there are multiple networks (cable, DSL, FTTH) regulators should identify if there are asymmetries in existing regulation and regulatory measures affecting those networks and remove the asymmetries to create a level playing field.
  • Regulators and governments should allow the roll-out of new networks regardless of whether there are existing networks in the area and regardless of whether these are government owned (i.e. they should not try to protect an existing investment in a network by a private or public/semi-public organisation).
  • Business models for new networks are sensitive to roll-out costs, population density, penetration rates and therefore show significant first mover advantages and a bias toward existing networks on a local level.
  • Regulators should keep the provision of services open and competitive and not grant a monopoly on services when providing regulatory certainty for the investment in networks.

Some governments have policies in place that facilitate local loop unbundling and wholesale broadband access. These policies should anticipate the technical specifics of new networks in order to facilitate local loop unbundling and wholesale access. Some specifics that need to be taken into account are:

  • The space that street cabinets of new VDSL networks require is substantial. This may result in local governments and citizens objecting to the placement of multiple street cabinets in the same location for aesthetical reasons. Solutions could include: collocation in street cabinets, requiring the construction of less obtrusive street cabinets (indoors, underground, etc.), or overruling local objections and requiring local governments to allow multiple street cabinets.
  • A problem of stranded investment is raised by the closing of existing MDF-locations if these are currently used by alternative operators.
  • As shown there are different ways to facilitate unbundling of PON-networks. If unbundling is a regulatory tool, then the question of whether unbundling should be incorporated in network design from the start needs to be considered and balanced against the need to allow investors to take their own technological decisions.
  • Policies should enable local traffic to be exchanged locally by allowing local interconnections between regulated and unregulated networks. This will decrease pressure on the backhaul links and enable better competition between ISPs, lower costs and higher quality of service for end-users.

Investor

In many OECD countries there is a debate whether the government (local governments) should do more than stimulate and regulate the roll out of fibre based networks and actively invest in new networks.

As a general rule government intervention in the market should be as minimal as possible. If governments do invest in new networks, they should determine to what extent this is necessary because of market failure and only invest to correct this failure.

There are three questions that governments need to answer before they decide to invest in new networks.

i) Is public welfare enhanced with investment in new networks?
The new generation of telecommunications networks do provide significant advantages over the current generation of networks. New networks can be viewed as enhancing public welfare.

ii) Is there market failure?
Governments should clearly identify whether the market already provides the networks that are required and if there is market failure. …If the required networks are not available and no market investment is to be expected in a foreseeable period and this is due to market failure, then governments can consider investing themselves.

iii) Do the benefits of government intervention outweigh the costs?
It can be said that if adequate telecommunications infrastructure is not present, it will be harder for regions to increase economic growth and public welfare.

When governments do make the political decision to intervene in advanced telecommunications networks they will have to determine how they intervene. The intervention should foster competition and result in an open network that supports a competitive environment. Some elements to be considered for intervention and investments are:

  • Regulatory interventions should be limited to the extent that they compensate for the market failure.
  • When governments subsidise new networks or participate in public-private partnerships these should result in open networks that foster competition.
  • Government’s role in investing in physical infrastructures and provisioning services should be on a gradual scale with roughly the following steps:

i) Digging trenches and laying ducts, removing a significant part of the costs of rolling out a network.

ii) Providing passive network infrastructure to which network providers can connect their active infrastructure.

iii) Providing an active network over which others can provide their services.

iv) Providing services over the network to end-users.

  • If governments are investing in networks and services, they should periodically evaluate whether there is still a necessity to do so and preferably state a fixed term at the start of the investment when the decision will be evaluated.
  • The business model of the network should not be made dependent upon the provision of services and network connections should be available separate to services.
  • A neutral and open network also requires a neutral and open interconnection point, where customers, network providers and service providers can connect to the network.
  • The network topology chosen for the network should be designed with competition in mind. A point to point network is therefore desirable over a PON-network.
  • Governments should differentiate as little as possible between service providers and users of the network. Differentiation between users and service providers should reflect costs, efforts and service levels, allowing users to become service providers without an additional barrier.

The OECD also held a Workshop on fibre investment across the OECD and best practices across a range of investment scenarios. The Workshop examined how regulations concerning fibre are evolving in OECD countries and how to ensure that these networks help promote effective competition. The agenda and presentations are available here

ATUG is interested in members’ comments as we prepare our submission to the NBN Regulatory Issues papers. Email lauren.mcginley@atug.org.au

** Details for coming events will be forwarded via normal notice/event channels.
***This email has been sent from: Lauren McGinley, Australian Telecommunications Users Group, Suite 506, Level 5, 815 Pacific HWY Chatswood NSW 2067
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