Issue: 24/08

ATUG NBN and Network Design

June 25, 2008

ATUG has been preparing our response to the Minister’s request for submissions on regulatory issues associated with the National Broadband Network.

The Government has said it is prepared to consider changes to existing telecommunications regulations to facilitate the roll-out of the National Broadband Network.

ATUG notes that this in the context of the Government recognising 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.

From ATUG’s perspective, this statement provides the appropriate policy framework for Australia’s NBN and discussion of future regulatory settings to facilitate the roll-out of the NBN.

ATUG’s submission on regulatory issues is based on member discussions and Forums during 2007 and 2008 and on our assessment of global developments and trends.

ATUG’s central concerns are:

• Policy Objective • Affordability • Choice • Equivalence – in practice • Customer Experience • Ubiquity

ATUG’s key suggestions are:

• The Policy objective for the NBN regulatory framework must remain, the “Long-term Interests of End Users”. • Affordability is key to take-up. Regulation should support cost effective build. Competition is the strongest tool for delivering affordable prices. An entry level “safety-net” package should be developed • Choice – network topology is central to competition and choice. Designs that foreclose competition should not be accepted. When infrastructure competition is not possible, service competition based on open access and equivalence must be possible. • Equivalence in practice – can only be assured by a new and independent body, NBN Australia, with the task of implementing the Open Access and Equivalence Frameworks for Australia’s NBN. • Customer Experience in the NBN environment must be managed for success, from the initial migration through service contracting to service switching and repair experiences. Service quality and security standards must reflect the key role of the NBN in the lives of all Australians. • Ubiquity – all Australians must be connected to the NBN. Ubiquity is not only about network availability but also about affordability and accessibility. When all Australians are connected to the NBN, the real potential of this capability for productivity, growth and innovation will be open to end users in all parts of the economy and community, and in all regions of Australia.

Recent OECD work on broadband pricing in Australia and the competitive impacts of network design have significant implications for Australia’s NBN regulatory framework.

PRICING
A presentation at ATUG 2008 by Dr Taylor Reynolds from the OECD discussed a number of indicators of price (and speed) for Australia - Click Here

Australia’s end user still pay a premium for communications services. The presentation makes the point voice still accounts for 79% of total telecom revenues in all OECD countries, with mobile revenues alone accounting for 40%. Australia has the third highest mobile prices among OECD countries in 2005 up from our position three years earlier. High end users of fixed voice services in Australia pay 75% more than their OECD average counterparts. Mobile high end users pay 20% more. On average users in Australia pay 10% more than the average OECD end user. In ATUG’s view this price premium indicates that prices in Australia are not yet at competitive levels. ATUG is concerned that this price disparity must not be reflected in prices for fibre based voice and data services. The discussion on Rates of Return for fibre networks should not reflect historic, monopoly margins. Comparative Broadband Prices (USD, PPP) OECD Broadband prices are reducing – DSL by 19%, cable by 16%. Broadband prices in Australia ranges from $21.66 up to $108.45 compared to for example The Netherlands with $7.74 up to $87.88, Canada $21.96 up to $97.63 or Korea at $30.56 up to $57.29. Comparing average monthly prices for a monthly subscription overall, OECD is $49.31, Australia $52.26. Comparing monthly average price per advertised Mbit per second, OECD overall is $17.85 and Australia is $21.34 Comparing the average price per additional GB after the cap, OECD is $33.21, Australia is $108.48. According to OECD statistics, Australia has the one of lowest bit/data cap levels (15GB) and the highest excess MB charge (over 10c per MB).

OECD Broadband Portal report:

The figure below comes from the OECD’s Broadband Growth and Polices Report available through the OECD’s Broadband Portal Here at Chart 1a.

A number issues arise from this information on pricing:

• There is no room for a significant increase in prices for fibre based broadband services • The price of international connectivity is still too high • Australia needs to have an entry level offer to encourage take up of NBN Australia services.

NETWORK DESIGN AND COMPETITION
The OECD is recommending policymakers seriously consider issues of network design and their implications for competitive outcomes at the earliest stage of fibre deployment.

A number of recently released OECD papers have discussed the competitive
concerns which arise with point-to-multipoint network layouts (e.g. those commonly used for PON and VDSL):

DEVELOPMENTS IN FIBRE TECHNOLOGIES AND INVESTMENT DSTI/ICCP/CISP(2007)4/FINAL http://www.oecd.org/dataoecd/49/8/40390735.pdf (page 26, 41, 42 etc) Convergence and NGN – Ministerial Background Report DSTI/ICCP/CISP(2007)2/FINAL http://www.oecd.org/dataoecd/25/11/40761101.pdf (pages 21, 25, etc) Broadband Growth and Policies in OECD countries C(2008)51 http://www.oecd.org/dataoecd/32/57/40629067.pdf (page 50,51, etc) The OECD also recently held a Workshop on fibre investment and policy challenges, April 2008: http://www.oecd.org/document/56/0,3343,fr_2649_34225_40460600_1_1_1_1,00.html Two presentations cover the competition implications of network design Marvin SIRBU, Carnegie Mellon FTTP Networks: Topology and Competition Click Here

Conclusions Up Front (slide 2)

- FTTP networks have significant economies of scale – facilities-based competition is unlikely to be sustainable - Service level competition can exist over shared network infrastructure

• Sharing is possible at different levels • Sharing of dark fiber requires attention to fibre layout

- There is a great variety in the models of sharing which can be found today

Herman WAGTER, Citynet Amsterdam Fibre from the Home – the fundamentals http://www.oecd.org/dataoecd/36/28/40460647.pdf For the style of this presentation, (slide 3):

• The first casualty of war is truth – telecom is apparently a warzone, • Technology is obscured by spin doctors and propaganda, at cocktail parties everyone has an (usually uninformed) opinion, • One conclusion: the stakes are high, it really matters to society, • But for policy makers and regulators, very difficult to grasp the key issues through all the FUD

For the substance of this presentation, Strategic Design (slide 23)

To preclude competition:

• Many small POPs • Topology – splitters deep in the network – lock in 32 customers to 1 operator • Exclusive TV-channel distribution

Home Run network, (Slide 25)

Contrary to popular belief many fibres is not a problem at all. Practice in Amsterdam is 13,000 to 20,000 fibres per POP/first aggregation point.

The implications of network design on competition are also discussed in a recent paper by Banerjee, A. and Sirbu, M., “Towards Technologically and Competitively Neutral Fiber to the Home (FTTH) Infrastructure," in Chlamtac, I., Gumaste, A. and Czabo, C., eds, Broadband Services: Business Models and Technologies for Community Networks, (John Wiley: New Jersey, 2005), Click Here:

“As a result of the FCC’s recent Triennial Review decision, incumbents who invest in FTTH are not obligated to offer UNEs at regulated rates. In deploying fiber to the home, incumbents may consider it unnecessary, therefore, to adopt an architecture that enables physical plant unbundling or they may be tempted to design the deployed fiber architecture in a way that eliminates the potential for future competition based on unbundled dark fiber elements even at negotiated rates. This paper argues why it may be desirable to have the option of deploying multiple data-link layer technologies and goes on to show that the minimum cost fiber network - taking into account the real options an OFAP provides - results in fiber layout, which is, in fact, hospitable to physical plant unbundling and Unbundled Network Element (UNE) competition. Such a fiber layout can, conceivably, support both point-to-multi-point (P2MP) PON architectures as well as point-to-point (P2P) active star and home run architectures.”

ATUG’s submission on the NBN Regulatory Issues is presented in the following sections:

• Summary of ATUG Member Discussions on the NBN Regulatory Issues in June 2008 • The Commonwealth’s Objectives for the NBN. • ATUG Member Discussions during 2007 • ATUG Future Forums 2007-2008 • Global Developments – Network Design • Global Developments – Equivalence • ATUG Cross Connect meetings on the NBN RFP, April 2008 • ATUG Member Discussions on the NBN Regulatory Issues, June 2008, Discussion Paper

ATUG is seeking assurances that Australia’s regulatory framework for telecommunications will only be adjusted and amended after public consultation and discussion among all stakeholders.

There is no acceptable option for policy, legislation and regulation developed in consideration of the long-term interests of end users to be “negotiated” in a commercial setting.

The Government has been clear in the NBN RFP on its objectives and evaluation criteria for bidders. ATUG supports these objectives and criteria. ATUG has welcomed opportunities to provide input to the Expert Panel Guidelines process and to make a submission to Government about NBN Regulatory Issues.

ATUG would welcome an opportunity to make further comment on any regulatory proposals to facilitate the roll-out of the NBN.

ATUG would like to thank our members in all States for their input over the past two years on issues related to effective deployment of next Generation Broadband in Australia. We would welcome any comments on the submission which is available on the ATUG home page, www.atug.com.au