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NBN Co's latest backflip

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Image edited by Dan Jensen.

NBN Co is giving in to pressure to stop competing with its own retail customers.

The original plans for the NBN were to build a high-speed, residential broadband network that would be made available to the other telecommunication companies on a wholesale basis. Corporate infrastructure was basically left out of the plan as these organisations were, in general, well-serviced by competing networks.

But there was a loophole. What exactly is classified as a business? In the original plan businesses – for the purpose of the NBN – were larger companies and government customers who were serviced through fibre optic networks of the traditional telcos. These networks were mainly situated in CBDs and dedicated business precincts. The smaller businesses – mainly spread throughout residential areas – would be included in the residential NBN rollout.

However, when NBN Co faced financial problems because of low uptake of higher speed residential services and the high costs of the complex multi-technology mix system, they started to look at other ways to make money.

They argued that they had a mandate to roll out a national network and that would include CBDs and dedicated business precincts, even if most of these areas were already well serviced, sometimes by up to 5 or 10 competing providers.

This behaviour resulted in a range of issues. First, taxpayers money was now used to overbuild perfectly good existing infrastructure simple to give NBN Co their own access to highly profitable corporate customers. Furthermore, they now started direct retail competition with its own retail service providers (RSPs).

It had never been the original intention of the NBN strategy to allow NBN Co to offer their services directly to corporate customers. This behaviour now started to create a situation of unfair competition.

However, a government desperate to see the NBN Co limit their financial problems closed their eyes to this situation. It was hollow words when Minister Paul Fletcher mentioned his priority for competition in the telecoms market, without addressing the anti-competitive situation that NBN Co was creating.

Also, the regulator has indicated its misgivings about this situation and supported the industry who has been bitterly complaining about this for the last few years.

Finally, NBN Co buckled under the pressure and it seems it has now given in, by indicating that instead of overbuilding existing fibre infrastructure, they will use the existing infrastructure of its competitors instead.

A few days later, they also yielded to the industry blowback over its enterprise and government business, declaring it will stop contracting directly with users and share sales leads with its retailers.

It is good to see that these situations are now rectified but it should never have happened in the first place, as this was never the intent of the original NBN plan.

NBN Co has indicated that it will use this competing infrastructure based on "dark fibre". What this means is that the company will simply lease the fibre without any (management) services attached to it. 

Interestingly, access to dark fibre has always been fiercely resisted by companies such as Telstra and Optus as they would simply only get a utility rate for such access to their fibre networks. They instead wanted to provide so-called managed infrastructure services, which have a significant premium price attached. Ironically, they will now be forced to abandon that policy if they want to deal with the NBN Co.

Challengers such as Vocus have fewer problems with such an approach and are happily selling its surplus access as dark fibre.

The industry has been invited to respond to a consultation paper exploring possible approaches for the procurement of additional dark fibre services from network carriers in customer locations already served to some extent by existing fibre.

It has never been a secret that there was plenty of dark fibre available even though the incumbents claimed that they couldn’t provide dark fibre as their networks operated at full capacity.

In all reality, however, especially during the dotcom bubble – now 20 years ago – an enormous amount of fibre optic networks was built for a predicted hyped-up demand that never fully eventuated.

NBN Co is proposing two possible approaches to dark fibre procurement for linking to customer premises.

Option one would involve the expansion of NBN co’s current Request For Proposal (RFP) process in which the company would request one or more pre-qualified NBN-approved suppliers to provide a proposal to supply dark fibre connectivity services at specific locations.

This would – according to the company - support the delivery of NBN Co’s "enterprise ethernet" set of service.

Option Two involves NBN Co establishing an industry-wide reverse-auction process by which the company would periodically conduct reverse auctions.

They claim that this would allow existing fibre network providers to bid, on a confidential basis, to supply NBN Co with dark fibre connectivity services to specified locations.

It will be very interesting to see how this saga continues. Are Telstra and Optus suddenly turning themselves into happy dark fibre providers?

On a more positive note, the traditional telcos have limited their own fibre rollouts to the most lucrative customers. NBN Co’s rollout covers more premises including schools, midsize businesses and smaller government and business offices. These potential customers were left out in the fibre deployments of the traditional telcos and thanks to NBN Co’s push into this market, these smaller organisations are now suddenly within reach of gigabit networks at much lower costs, as smaller RSPs now have access to NBN Co’s fibre.

The smaller players have a far greater incentive to use lower prices to connect corporate and government premises as they don’t have to protect larger enterprise accounts.

Unlike the fibre from NBN Co, fibre networks from the other players are not available on a dark fibre basis to the retail service providers (RSPs).

So in all, NBN Co’s backflips are a change for the better.

Paul Budde is managing director of Paul Budde Consulting, an independent telecommunications research and consultancy organisation. You can follow Paul on Twitter @PaulBudde.

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