Issue: 16/08

NBN Regulatory Models

April 30, 2008

ATUG Cross Connect (cXc) meetings last week discussed end user requirements for contemporary broadband services, a range of issues were raised relevant to the National Broadband Network RFP, regulatory issues and remote area solutions.

The related documents are:

National Broadband Networks Proposals
Government invites National Broadband Network proposals – Due 25 July, 3pm AEST
The Minister for Broadband, Communications and the Digital Economy, Senator the Hon Stephen Conroy, announced the release of the Request for Proposals (RFP) to roll-out and operate the National Broadband Network.
Click Here

National Broadband Network Request for submissions on regulatory issues – Due 25 June, 3pm AEST
The Minister for Broadband, Communications and the Digital Economy, the Hon Stephen Conroy invited industry and public interest groups to provide submissions on regulatory issues associated with the National Broadband Network.
Click Here

Call for submissions on broadband solutions for remote areas – Due 30 June, 5pm AEST
The Minister for Broadband, Communications and the Digital Economy, Senator the Hon Stephen Conroy, has called for submissions on policy and funding initiatives to provide enhanced broadband to rural and remote areas.
Click Here

Telecommunications consumer stakeholder forum
The Minister for Broadband, Communications and the Digital Economy, Senator the Hon Stephen Conroy, announced that a forum to identify ways to make consumer representation in telecommunications policy making more effective will be held in Canberra on Thursday 1 May 2008.
Click Here

Concerns raised by members, which will be considered in the development of ATUG’s response to the consultations, included:

• Creation of a new Telstra monopoly and if so, what influence Service Providers would have in trying to develop and offer a range of tailored services.

• How could end users be confident of what they are being provided? While take-up of future applications was not clear, extensive service development was required with focus on delivering a first class end user experience.

• Distinct Business and Domestic services need to be available with clear and measurable service capabilities. Given the poor experience to date the meeting strongly supported the concept of Quality and Performance Regulation as a means to ensure reasonable end user experiences

• Preserving competitive service in the ‘last mile’ was strongly supported. A well regulated and effective wholesale market place was considered a ‘MUST’ with open and equitable access for all providers.

• The FTTN must be dimensioned for a wide range of services including e health, distance education and general business needs as well as entertainment and IPTV needs need to be considered.

• The new NGN should be considered to be an ‘innovation platform’ with a strong focus on open and interoperable standards, peer to peer working requiring symmetrical services, network neutrality and a capability to accommodate IPV6.

• The future of multiple concurrent applications on a domestic service, means a target capability of 100 Mbps should be set.

• While data rates were considered important, the need for large and reasonably priced monthly download capacities was considered crucial.

• Consideration should be given to ensuring that a content service provider can charge for services as well as the access provider.

• Recognising divergent views on appropriate Rates of Return, (RoR), support was expressed for an examination of the likely increase in end user prices that would result from an increase in RoR, as a means to develop an effective and harmonious wholesale market place, if Telstra is the only transport service provider.

• Also strong support was expressed for robust wholesale regulation to ensure effective competitive outcomes.

• To achieve an effective regulatory environment the meeting expressed strong support for a pro-active and interventionist regulator not dissimilar to environment of Austel.

It is also important to reflect on developments overseas, as Australia thinks through the appropriate policy and regulatory context for our FTTx network development.

New Zealand - Operational Separation of Telecom

Operational separation of Telecom's business is part of a package of new regulatory measures brought in with the passage of the Telecommunications Amendment Act in December 2006.

Operational separation in NZ is based on equivalence of treatment in the supply of services to internal and external purchasers to avoid discrimination and foster market competition.

A Ministerial Determination was released in September 2007 for consultation on key parameters for the operational separation of Telecom. Telecom's initial Draft Separation Plan was received by the Minister for Communications in October 2007, which was amended following public consultation. In December 2007, the Minister released an Amending Determination, updating his requirements, and called for public submissions on Telecom's Amended Separation Plan.

The Separation Plan (comprising the undertakings) was approved by the Minister on 30 March 2008, and became legally enforceable on Separation Day - 31 March 2008.

Full details are available here
Telecom NZ’s Undertakings are available here

Singapore

Open Access Next Gen NBN – Structural Separation for Next Gen NBN NetCo
The Next Gen NBN will comprise three key conceptual industry layers. Undergirding the Next Gen NBN is the Network Company (Next Gen NBN NetCo), which will be responsible for the design, build and operation of the passive infrastructure layer. Leveraging the Next Gen NBN NetCo’s passive infrastructure would be operating companies that are responsible for the design, build and operation of the active infrastructure to provide wholesale broadband connectivity to other operating companies and RSPs. These RSPs will in turn compete to provide innovative services to end-users.
For Singapore to fully benefit from the economic opportunities of this pervasive and ultra-high speed infrastructure, it is critical for the Next Gen NBN to ensure effective open access to the infrastructure by downstream operators. This will create a vibrant and competitive broadband market. As a policy, the Government has therefore decided to adopt separation between the different layers of the Next Gen NBN to achieve effective open access.

Operational Separation for Next Gen NBN OpCo
The Next Gen NBN OpCo selected through Singapore’s Next Gen NBN OpCo RFP will be required to be Operationally Separated from downstream RSPs, in line with the industry structure envisaged for the Open Access Next Gen NBN. Compared to the Structural Separation imposed on the Next Gen NBN NetCo, Operational Separation is a less stringent form of separation as the Next Gen NBN OpCo will be allowed to retain full shareholding ownership of its downstream operating units, such as RSPs.
However, the Next Gen NBN OpCo will be required to treat all downstream units equally, and on a non-discriminatory basis. The Next Gen NBN OpCo will have to operate on a standalone basis separate, from its affiliated downstream operating units, and be subject to various obligations, including being established as a separate legal entity and maintaining separate board, management and staff.

In addition to Operational Separation, the Next Gen NBN OpCo will also be subject to other key obligations as follows:
1. Price Control
The Next Gen NBN OpCo must offer fair and non-discriminatory wholesale broadband services to other Operating Companies and downstream operators such as RSPs through an Interconnection Offer (ICO). The prices and terms and conditions of these wholesale offerings will be regulated by IDA.

2. Universal Service Obligation (USO)
The Next Gen NBN OpCo will be required to complement a similar obligation on the Next Gen NBN NetCo. The Next Gen NBN OpCo will be obliged to meet all reasonable requests by any operating company or downstream RSP for access to a basic set of wholesale services offered under its ICO.

In addition to Operational Separation, the Next Gen NBN OpCo will also be subject to other key obligations as follows:
Full details on the IDA’s Public Consultation on Industry Structure for Next Generation Access Networks, issued on 17 April 2008, are available here

Canada

A useful summary is in the AXIA Net Media Presentation at ATUG 2008 is available here

CEO Art Price outlined the approach adopted by Axia in Canada and France in its Fibre Deployments. The presentation, Next Generation Network Drivers and Implementation Approaches, made the clear statement:

‘The common attribute across…break-through
implementations:

Put the NGN fibre grid in a no-conflict open access
business model by separating ownership.’

France

A presentation NGN Access, Results of public consultations and directions, to the ECTA Regulatory Conference in November 2007 by Ms Gabrielle Gauthey, ARCEP’s (French Regulator) Commissioner is available here

The French approach is based on infrastructure sharing (Slide 9):

Operators will have to allow sharing:
– for the long term, at the base of building
– temporarily, at the optical distribution frame
– to limit the risk of local monopolies...
– …while encouraging investment

• ARCEP is now initiating multi-lateral work to discuss
how sharing can be done…

• … and will issue recommendations for landlords and
building managers
– practical guide
– model agreement

• The goal is to anticipate the “symmetrical” regulation
framework and to provide guarantees so that fibre
can be installed in buildings

UK

The UK approach by BT was outlined in Grant Forsyth’s Presentation at ATUG 2008 – Overseas Developments: Successes in A functionally separated world.
Click Here

Forsyth outlined the usual objections to Functional Separation and BT’s response to them:

1. Suppresses investment
– Return on investment is determined independent of FS
– Greater certainty supports wider investment from incumbent and entrants
2. Suppresses investment in fibre
– UK is leading in fibre deployment
– UK committed to green-fields FTTP on an EOI basis – no “Regulatory
Holidays”
3. Creates a monopoly
– EOI only for enduring bottlenecks – i.e. exiting monopoly
– Entrants free to invest where opportunities exist / business case work
4. Duct sharing is a better alternative
– Practical issues rule it out for more than a select few
– How is equivalence of access to be delivered? Functional Separation?
5. Replicability is a better alternative: Equivalence = Equal
– France: MAN Ethernet
– Spain: Metro-net Ethernet
6. Too costly
– To whom? Costs of competition always “too costly” when imposed
– Incremental cost of EOI not significant vs. other systems costs
7. Destroys the share value of the incumbent
– Ask the shareholders and the analysts
– Not the experience of BT
8. Eliminates jobs and dumbs down pay and conditions
– Openreach: increased number of employees employed, increased the value of individual remuneration provided

Information on BT’s Undertakings which created Openreach: Click Here

Information on the implementation of BT’s undertakings: Click Here

ATUG will continue to discuss these important issues over coming months and welcomes any comments from members as we prepare our response for the Minister, email lauren.mcginley@atug.org.au