Issue: 23/08

ATUG NBN Forums and Submission

June 18, 2008

ATUG’s approach to NBN Regulatory Issues – Discussions with members June 2008 on the key issues and high level principles will be put forward to Government seeking appropriate legislative amendments. We have held two meetings, Melbourne and Adelaide, to date. Meetings in Sydney and Queensland will be held tomorrow on the 19th of June, the Western Australian meeting will be held on the 24th. Please click here for more information.

ATUG are interested to hear your feedback and will be using it to formulate the submission to the government. Please email any feedback to rosemary.sinclair@atug.org.au

Policy Objective for the new Legislation

Long-term interests of end users remains the objective to telecommunications policy in Australia, especially policy designed to encourage accelerated and extended investment in next generation broadband networks.

Affordability

Next Generation broadband will not achieve the right outcomes for Australia if end users cannot afford to pay for it.

Discussion Points
• Ways of reducing build costs; carrier powers and immunities; access to physical infrastructure; infrastructure sharing

o Maximum opportunity should be taken to utilise existing physical infrastructure, eg, towers, poles, pits, ducts, on an “equitable” basis so as to reduce cost and environmental impact. o For example in the case of the overhead cable option, (whereby new technology, non metallic cable can be erected beside electrical conductors) legislation must make carriers exempt from local government planning laws for this specific activity. o A code of practice to address construction practises should be developed by Communications Alliance and registered with and compliance monitored by the Australia Communications and Media Authority.

• Availability of an entry level package, as exists with the Australian Broadband Guarantee, to ensure all end users can afford to connect to the NBN

• Pricing should reflect real costs of construction, fair returns for private investors and government

Choice

Competition remains a key outcome for ATUG. Where possible, infrastructure competition is preferred. Where this is not possible service competition is preferable to monopoly.

Discussion points
• Structural separation – separate ownership

• Functional separation – separate structures, processes, management teams, incentives under common corporate ownership

• How to achieve wholesale service equivalence – price, non-price. a comprehensive set of “service equivalence” industry rules must be established by an Independent Body

• How to achieve industry “tolerance” and effective self-regulation of advocacy

• The Trade Practices Act should be the vehicle. It already requires the ACCC to take account of the risk of new investment in setting access prices and has provisions for access and anti-competitive conduct

• Compliance with the Rules by both providers and seekers must be monitored independently and enforced by the Regulator.

Oversight Body – NBN Australia

ATUG sees the increased level of disputes and the increased use of legal process to delay outcomes as evidence that industry processes are not working and that ACCC processes reflect a philosophy suitable in 1997 but self-evidently not workable in 2008. The migration task associated with the roll-out and cut-over of all broadband users to the NBN is a huge project requiring commitment over many years. The implementation of processes to support effective of functional separation is a preliminary task requiring industry co-operation which has not been seen for some years.

Discussion Points
• Can industry-based, independent monitoring of competitive behaviour be established to mitigate the risk of non-price anti-competitive behaviour especially to timeliness of outcomes?

• Could this body be a required step ahead of arbitration and litigation?

• What role should the ACCC have in this body?

• What role should end users have in this body?

NBN Customer Experience

End users need more information on speeds as broadband becomes more integral to working and living. Customer service and switching processes for broadband services need to be updated. Migration plans for NBN implementation need to take account of end user needs at the beginning and not require Ministerial intervention as happened with CDMA switch off.

Discussion Points
Customer Migration

o Legislation should require the establishment of an Industry Code of Practice to set out rules and processes for the fair and reasonable transfer of a customer from one provider to another provider.

Customer Information

o Legislation should require the establishment of a “Framework” for the presentation of a minimum set of standardised customer focused data describing the characteristics of a particular service and the speed performance delivery standards.

Rules Compliance

o Legislation must require all industry participants to enter into a formal legal agreement with the appropriate Industry Regulators to comply with applicable Industry Rules and Codes of Practice.

Ubiquity of Australia’s NBN

ATUG believes all Australians, wherever they are, should have access to the NBN minimum service at affordable prices. The real benefit of the NBN will not be achieved unless ALL Australians can be connected. The transformation of business, government and community services and activities that could be possible with Next Generation Broadband cannot be achieved without ubiquitous coverage.

Discussion Points
• An entry level product should be available to ensure all end users can connect to the NBN

• Should the USO be extended to include broadband – an Australian Communications Guarantee including Voice* and Broadband (Voice* means Voice and Voice Equivalent services)

• Government funding for USO services is preferable to industry based cross subsidy schemes

• Does the emergency service obligation apply to FTTx builds – what are the cost implications?

• Spectrum for broadband in regional and remote areas – timeliness, cost

• The ABG will be need to be funded sufficiently to provide coverage until NBN services are available

Background to NBN Regulatory discussions

From ATUG Report to Members December 2007

Fibre to the Node
Discussions in early 2007 between the ACCC and Telstra (ahead of public consultation on a Proposed Undertaking by Telstra in regard to access to the FTTN for competitors) stalled over the cross subsidy for regional services to fund the Universal Service Obligation which in Telstra’s view is not adequately funded by industry. Telstra sought $13.63 per month to cover the cross subsidy. The ACCC was prepared to allow $1.77 per month in the access price for competitors. Funding the USO/regional services has been a key feature of all Telstra’s regulatory activity recently – including its position on ULL pricing. The quoted wholesale price of $85 per month is arrived at by calculating existing margin returns rather than assessing true costs. This tendency to monopoly rather than competitive pricing is the reason a new FTTN service would have to be subject to price regulation. The debate needs to be broadened to Fibre to the Premises and the regulatory framework adopted or adapted will need to ensure affordable services are delivered to end users. Industry focus is still on speeds rather than affordability.

Functional Separation
Around the world regulation is increasingly focused on key bottlenecks using less but more targeted regulatory tools. One of these tools is Functional Separation which allows for investment certainty for all players while promoting continued competition. Functional separation allows regulators to intervene in persistent bottleneck markets where non-discriminatory behaviour cannot be ensured by other remedies. Functional separation has spurred investment in unbundled access lines in the UK with continued increases in market valuation for BT. It is clear that market size in Australia must be taken into account in return on investment and pricing calculations. In 1990’s ATUG’s strong preference was for separated Network and Service Companies. In 2008 Functional Separation provides the tool to achieve this outcome in the new era of significant network upgrade to fibre to the premises.

Operational Separation
The Australian model was been introduced on the basis of the Minister accepting Telstra’s Operational Separation Plan and its sub components of Price Equivalence, Service Quality, Information Security, Customer Responsiveness, Information Security (to be published). The ACCC has published its Retail Pricing Protocol to advise how it assesses potentially anti-competitive behaviour in telecommunications markets, and its views on the concept of 'price equivalence' which is an important element of the operational separation of Telstra. Consultation with industry and end users was via submissions to Telstra. This framework will be reviewed in 2008.

Broadband Speeds
Broadband speed is an emerging issue for end users as applications become more viable and relevant e.g., Voice over IP. ATUG’s policy is all Australian users should have affordable, multi-megabit symmetrical broadband access. Industry developments in the last months of 2006 which saw increased speeds on offer more broadly were welcome. Also of interest is the ACCC’s position that excessive claims of speed by network service providers can be misleading in a Trade Practices Act sense. Operators will need to delineate the whole range of parameters that dictate the likely speeds the customers will obtain for fixed line or mobile data services. It is not enough for service providers to make ‘blanket claims’ that customers will get speeds ‘up to’ a certain threshold when significant limitations apply to the attainment of those speeds. This issue is on the radar for regulators in many countries.

Long-term interests of end users
2007 has seen continued effort to change the core objective of telecommunications policy from the “long-term interests of end users” to the interests of shareholders and investors. This debate will continue through 2008 and will be a key focus of the review of telecommunications policy in 2008/2009. The ACCC’s regulatory role is to strike a balance between ensuring that investors (taking account of their risks) are not discouraged from undertaking new efficient investment, at the same time, however, ensuring that consumers obtain the benefit of competition. ATUG will continue to emphasise that the core objective of communications policy and regulation must be the long-term interests of end users.

Future Forums Outcomes

During 2007 as well as campaigning for competition, ATUG was very focused on the future ahead for end users and the communications industry.

The Demand Forum

Highlighted the need for a range of broadband speeds and pricing plans “fit for purpose”.

Many end users are on a journey with broadband.

Building their understanding of value.

They do not want to be presented with very high speed but unaffordable broadband services, which have more bang than their wallets have bucks.

Just as important for end users right now are proper plans where what you see in the ad is actually what you get;

A market where switching broadband providers is as seamless as switching mobile providers.

And for business users;

A market where broadband availability is ubiquitous and quality is consistent.

End user confidence emerged as a key issue as the economy in all sectors looks to transform just about all transactions and processes based on the new connectivity.

“Any to any connectivity” and “always on” are shared visions BUT the need for speed and the ability to pay is specific to each user.

The Technology Forum

Came to the conclusion that fibre to the home/farm/business is the future for the fixed network.

BUT to meet market demands for affordable, ubiquitous, high and (sometimes low speed) broadband.

and to deal with the distance/density issues in Australia, wireless services have an important role to play.

AND over time, just as voice services have become mobile, so will broadband services – for that segment of the market which is happy to pay the mobile premium for convenience.

The geography of Australia will mean satellites will also be an important part of the future technology landscape.

End users are really not interested in the technical specification of the underlying platforms and don’t approach this debate with any ideological predisposition to one platform or another.

The new world is an “Internet of Things”

And the need for IPv6 and the migration issues associated with such a huge change were highlighted.

The role of the SMART GRID rather than just the Smart Meter may provide the basis for increased infrastructure competition, but will require co-operation at unprecedented levels between Federal and State Governments through COAG and such processes, and with the private sector.

And the Forum felt access to competitive backhaul capacity within Australia and internationally will become more urgent in the next few years as content becomes richer and information flows more symmetrical.

The Investment Forum

Came at a point in the cycle of Forums, when Australia had just had an election with broadband a key issue.

The forum discussion focused on the rise and rise of social networking, better online content, smarter personal devices and the thinking by business and government about forms of Enterprise 2.0 or Agency 2.0 based on Web 2.0 technologies.

Businesses are seeing the move to digital business “net” based working as critical to mission and hence on the investment radar.

ATUG itself is exploring Web 2.0 working as a way of meeting members’ needs for information including direct international updates from experts.

Telco land is exploring new models of investment – including public/private partnerships and how these can be effectively structured to achieve the multiple objectives that underpin them.

PPPs are about risk management – an issue exercising the minds of many in Canberra no doubt.

New business models in the construction, operation end of the market are being matched with new business models in the content, applications end of the market.

And all this innovation is taking place in a privately funded market where shareholder expectations are an important consideration – albeit not the only consideration as the High Court has reminded us.

Broadband has to be affordable as well as available for end users and Australia as a whole to reap the benefits of this new economic and community infrastructure.

The Policy and Regulation Forum
Was more focused on FTTH developments and supporting regulatory frameworks.

Around the world two sets of issues are emerging –

• where incumbents build the FTTH networks, the issues are access to the switching network and fibre plant unbundling and the pricing of access;

• where competitors build the FTTH networks, the issues crystallize around over-build.

The characteristics of countries that are successfully deploying fibre include:
• Government regulatory commitment;
• strong user demand and
• a competitive broadband market.

A number of countries are exploring “functional separation” as a way of dealing more efficiently and effectively with bottleneck infrastructure, meaning effectively competitive sectors can be left to market forces.

Beyond the “fibre build” debate, there remain some big policy questions arising from:

• the merging of the telephony and internet worlds;

• the development of behavioral economics as a way of understanding the role of consumers as effective market participants;

• the need to reduce unnecessary regulation on economic activity;

• scarce resources such as spectrum becoming more abundant because of technology developments;

• the need to re-think Universal Service from an Obligation on industry to a Safety Net Guarantee from Government.

Minister’s request for submissions on regulatory issues associated with the National Broadband Network
The Minister for Broadband, Communications and the Digital Economy, invited industry and public interest groups to provide submissions on regulatory issues associated with the National Broadband Network.

The Government today issued a Request for Proposals (RFP) to facilitate the roll-out of the National Broadband Network that will deliver minimum speeds of 12 megabits per second to 98% of Australian homes and businesses.

“ In addition to an investment of up to $4.7 billion, the Government is prepared to consider changes to existing telecommunications regulations, to facilitate the roll-out of the National Broadband Network,” Senator Conroy said.

“ We recognise the critical importance of future telecommunications regulatory settings, including ongoing consumer safeguards, to ensure the best outcomes for all Australians and the competitiveness of the economy.”

The submissions will be due one month prior to the closing date for National Broadband Network proposals. All regulatory submissions will be made available to National Broadband Network proponents, to assist in the development of proposals. The Panel of Experts, who will be assessing the proposals, will also be able to consider these submissions before making its recommendation to Government.

The Government will make submissions publicly available, but reserves the right to not publish submissions or parts of submissions where it considers it appropriate to do so for confidentiality or other reasons.

Submissions must be received by 3.00pm AEST 25 June 2008. All submissions are to be provided to regulatory@dbcde.gov.au