Australia: NBN Implementation Study Summary

Information Communications and Technology May 2010
Last Updated: 12 May 2010
Article by Brendan Coady and Sonia Sharma

Implementation Study gives NBN the thumbs up

Don't have time read the 500 page plus Implementation Study on the NBN (or even the 50 page executive summary)? In this article Maddocks Telecommunications experts Brendan Coady and Sonia Sharma do the hard yards by dissecting the monster study and setting out what really matters.

SHORT AND SWEET

What: Release of the much anticipated National Broadband Network (NBN) Implementation study (Implementation Study) by consultants McKinsey and KPMG finds that the NBN is viable and could be built for less than the $43 billion originally put forward by the Rudd Government. The Implementation Study also recommends that while the Government should seek to strike a deal with Telstra, the Government could also "fly solo" on the project.

Why: Ever since the Government announced the NBN project last April questions have been raised about the financial viability of the project. Accordingly the Implementation Study aims to examines the Government's coverage, commerciality and competition objectives as well as the detailed operating arrangements of NBNCo Limited, its ownership and structure, ways to attract private sector investment and longer term privatisation.

Who's impacted: Everyone will be impacted by the NBN and the project has the potential to bring about one of the biggest social and cultural transformations the country has seen. The Implementation Study singles out Telstra (which is says is not required for the success of the NBN), access seekers (who are tipped to benefit from greater competition and a more level playing field) and consumers (who could end up paying as little as $50 and $60 a month for a combined fast internet and voice products).

When: NBNCo Limited (NBNCo) is already rolling out the high-speed broadband fibre-to-the-premise network to five "first release" sites on mainland Australia as part of live trials of its network design and construction methods. The Implementation Study concludes that a full roll out would take 8 years.

What next: The Government is currently considering the Implementation Study and its recommendations. Meanwhile the future of the Government's broader regulatory reforms aimed at increasing competition in the telecommunications sector remains uncertain with the Governments Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2009 stalled in the Senate.

Implementation Study Vindicates Governments NBN

Long suffering access seekers and consumers of telecommunications services are both likely to benefit under the Government's proposed roll-out of the NBN. The Rudd Government's ambitious NBN project got the thumbs up in the recently released Implementation Study conducted by McKinsey and KPMG. The key conclusion of the Implementation Study is that the Governments Objective's for the NBN can be implemented within the original $43 billion estimated or capital expenditure, by deploying a mixture of fibre, wireless and satellite technologies.

93 Percent fibre coverage and less reliance on fixed wireless

One of the most significant recommendation of the Implementation Study is that NBNCo Limited (NBNCo) should deploy fibre to 93 percent of premises by the end of the 8-year roll out, rather than the 90 percent objective originally set by the Government. The Implementation Study recommends a fixedwireless solution for the next 4 percent and satellite solution beyond the 97th percentile.

This runs contrary to the views of many pundits, who had suggested that the target of reaching 90% of premises with fibre was over ambitious and predicted that a greater reliance on wireless would be necessary to make the project viable. In fact, commentators are questioning whether the Implementation Study has paid adequate attention to the emerging popularity of mobile data technologies as evidenced by the consumer love affair of fixed-wireless enabled technologies such as iPhone and no doubt the iPad. The industry is grumbling that the Implementation Study's predictions regarding progress of data rates over wireless are out of step with wider industry trends.

The Implementation Study also recommends that to deliver a wireless solution that meets its coverage objectives, the Government should run a public tender process for a provider to build and operate a fixed-wireless network to deliver at least 12 Mbps peak data rate broadband to all services within the designated coverage footprint. Under the implantation study plan the successful fixed wireless tenderer would be permitted to provide both retail and wholesale services, unlike NBNCo itself, which is restricted to providing wholesale services.

Access Seekers set to enjoy greater competition

The Implementation study confirms that access seekers will be better off in the post NBN-world benefiting from greater levels of competition. The Implementation Study confirms that NBNCo can "level the playing field" in three significant ways by:

  • deploying infrastructure where bottlenecks exist in access and backhaul;
  • operating on a wholesale only, open access basis with equivalent service for all access seekers thereby addressing issues of vertical integration; and
  • offering Layer 2 Services and Layer 3 services elsewhere to strike a balance between lowering barriers and preserving the ability for access seekers to differentiate themselves in the market.

This significant focus on addressing backhaul as an enduring bottleneck and creating competition in the industry reflects the view many access seekers put forward during the initial consultation regarding the NBN and is generally inline with industry commentary.

In this post-NBN environment, where bottleneck issues are addressed, the price of access will become less significant for access seekers as a competitive differentiator and they will need to focus on other factors, such as innovative product offerings and superior customer service, to create and maintain market share. The represents a fundamental shift in the market dynamics of the Australian telecommunications landscape.

Consumers – the focus

Consumers are being touted as the other big winners in a post-NBN world. The Implementation Study finds that consumers could pay as little as $50 and $60 a month for a combined fast internet and voice products. Consumers are also likely to benefit from innovative product offerings as players try to differentiate themselves in the market.

The implementation study is very focused on premises and consumers, with less attention paid to the burgeoning world of smart infrastructure and the so called "internet of things". Many analysts and commentators feel that the Implementation Study pays insufficient heed to the environmental and economic benefits likely to be created by facilitating the connectivity of devices in areas such as power, water, transport and health.

Telstra

The Implementation Study concludes that the advent of the NBN is likely to hasten the retirement of Telstra copper network. This is because the competitive advantage of the NBN fibre is likely to make Telstra's existing access networks uncompetitive and Telstra will eventually have to make a business decision to let them go. The Implementation Study also recommends that, while the Government should seek to strike a deal with Telstra, and Telstra is currently in the process of talking to NBNCo/ the Government, it would be viable for the Government to go it alone and build the network without striking a deal with Telstra.

Content – the new competition bottleneck?

On an earnings call in February this year, media magnate Rupert Murdoch famously gloated, "content is not just king, it's the emperor of all things electronic." There is no doubt that super-fast broadband delivered by the NBN fibre technology will drive dramatic changes in the way we communicate and consume content. It is easy to forget that YouTube (owned by search engine giant Google) is less than five years old, social networking site facebook went mainstream in the last few years and popular mirco-blogging platform twitter is even younger. Yet these and other technologies are fundamentally changing the way we do business and socialise. Their impact is so profound that they are defining hallmarks of a generation of digital natives who have never know life without the Internet. While we can't predict what will be "the next YouTube" or what the next social networking phenomenon will be, what we can be sure of is that once the super-fast broadband technology is there the applications will follow and the way we consumer content, communicate and do business with each other is likely to fundamentally change.

The Implementation Study sends up a big red flag regarding the potential of content bottlenecks to stifle competition in this new NBN environment. The Implementation Study concludes that as the NBN creates a level playing field for network connectivity, content could become a basis for retailer differentiation. The Implementation Study cautions that because Australia's content market is so concentrated that there is a risk that today's incumbent content owners may translate this concentration into a strong influence on the market for retail telecommunications services delivered over the NBN. In fact, we already seeing players in the market leveraging their content advantage in monopolistic ways (for example Telstra has been working strategically to create "walled gardens" for its bigpond customers by offering not to count bigpond content towards download limits and offering exclusive deals on bigpond content).

The Implementation Study cautions that a suite of measures will need to be required to preemptively mitigate the risk of content bottleneck issues. Accordingly, we recommend that players in the Telco and content sector should be proactively considering there regulatory response to these issues as there are likely to be addressed in the future.

Conclusions

The Implementation Study confirms that the Government's objective to build a super-fast broadband network is viable.

While many commentators are questioning a range of the assumptions and conclusions of the study, it is clear that it will provide much needed momentum for the Government and NBNCo to aggressively push ahead with the revolutionary NBN Project.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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