Government wants NBN Co ready for potential break-up

Response to Vertigan panel reports includes dumping of uniform national wholesale pricing

The government has no plans to disaggregate NBN Co but will direct the company rolling out the National Broadband Network to implement a number of measures that will give future governments the ability to more easily split the organisation into independent businesses.

In a response to the recommendations of the panel charged with conducting a cost-benefit analysis of the NBN and reviewing the regulatory settings governing the network's rollout, the government reiterated its objection to breaking up NBN Co in the immediate future.

Disaggregation in the short term would potentially delay the rollout and be a distraction for NBN Co's management, the government said.

"However", the document adds "optionality for future restructuring or disaggregation should be retained, to provide future governments with greater policy and financial flexibility."

"To this end, NBN Co will be required to maintain separate accounts for its satellite, fixed wireless, FTTx, HFC and transit networks," it states.

"It is the Government’s preference that NBN Co develop operational and business support (OSS/BSS) IT systems that are readily separable by business unit so that these systems do not become a barrier to any future disaggregation.

"This may involve high costs, however, and so the costs of implementing separable OSS and BSS systems will be investigated by an independent party. This work will commence promptly with a view to it reaching a conclusion no later than 1 July 2015. "

The third report of the Vertigan panel, chaired by Dr Michael Vertigan, recommended "the disaggregation and divestment of NBN Co’s transit, satellite and fixed wireless business units, along with associated obligations, including with ongoing subsidies if they prove to be necessary".

That report said that separate entities could operate the satellite network, the fixed wireless network and the HFC network, while NBN Co continued to operate the FTTx network.

"These more focused entities would have smaller, more manageable mandates, thereby reducing financial risks to taxpayers and improving the chance of efficient and timely network rollout," the Vertigan report stated.

"Additionally, divesting these assets to specialist operators with established track records would shift risk from taxpayers onto the investors best placed to gauge, bear and manage those risks."

Uniform wholesale pricing dumped

The government's response to the Vertigan recommendations outlines a significant shift in regulatory settings for the NBN. The government will dump uniform national wholesale pricing. Instead it will be replaced with price caps.

Price caps "will ensure the price of the NBN cannot rise in either urban or regional areas but NBN Co can respond to competition," a statement issued by Communications Minister Malcolm Turnbull and Finance Minister by Mathias Cormann said.

"Price caps will not increase NBN wholesale prices in either urban or regional areas above the current levels approved by the [Australian Competition and Consumer Commission] ACCC in the SAU [NBN Co's Special Access Undertaking]," the government's response states.

"There will be scope for reduced wholesale prices in some markets, where this is necessary for NBN Co to respond to more competitive arrangements."

'Transparent funding arrangements'

The Department of Communications policy research arm will "undertake an assessment of the costs of NBN Co’s fixed wireless and satellite services, which serve many non‐commercial parts of Australia, and provide options to Government for replacing the current opaque NBN Co cross‐subsidy embedded in its wholesale access prices with more transparent funding arrangements," the document states.

"The intention of this reform is to ensure that the funding required to support non‐commercial services is transparent and contributions are made to these costs in a competitively neutral manner. At present NBN Co is required to fund non‐commercial areas from cross‐subsidies that disadvantage it in commercially attractive areas relative to other carriers. This is neither sustainable nor fair...

"The cross‐subsidies which are currently embedded in NBN Co’s wholesale prices will be replaced by transparent funding provided via contributions sourced from owners of high‐speed broadband access networks that target residential and small business customers – i.e. the NBN and networks in commercially viable areas that are comparable to the NBN.

"There will be no additional costs to consumers relative to current NBN pricing – an opaque part of the cost of the NBN will be made explicit. The Government will provide the ACCC with sufficient powers to monitor the introduction of these arrangements."

The policy document says the government will prepare a new regulatory framework for the telco sector that will commence on 1 January 2017.

The framework will include structural separation as the default for new high-speed fixed line broadband networks and competitively neutral arrangements for funding the NBN’s non‐commercial fixed wireless and satellite services. In addition, legislation will be introduced "requiring NBN Co to operate as the broadband infrastructure provider of last resort".

"The legislation will provide scope for non‐NBN carriers to be so designated in circumstances where they take on or are better able to fulfil this role," the document states.

The government has also launched a public consultation on telco infrastructure for greenfields developments.

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