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By Michelle Goldsmith

The NBN rollout, currently Australia’s largest and most ambitious infrastructure project, brings with it an array of different challenges and opportunities. Since the change of government and subsequent revised NBN rollout plan, these include the testing of alternative connection technologies, such as fibre-to-the-building (FTTB) and fibre-to-the-node (FTTN), and the possibility of infrastructure based competition between NBN Co. and other telecommunications providers. We ask what this means for both utilities and consumers.

What is FTTB?

A fibre-to-the-basement build, alternatively known as fibre-to-the-building or fibre-to-the-business, involves the fibre-optic cables extending to the boundary of a building, such as the basement in a large multistorey building. The final connection to individual premises (e.g. each unit in an apartment building) is completed via non-optical means, such as coaxial cable, wireless or twisted pairs. In most cases, the closer the fibre-optic cable comes to the premises, the faster the possible broadband speeds. Therefore, this type of connection may enable greater upload and download speeds to customers than a fibre-to-the-node connection. Preliminary tests produced download speeds of 108Mbps and upload speeds of 48Mbps.

This type of build is primarily used for large buildings in high density areas, and offers telecommunications providers the means to offer flexible product options to customers, and deploy new products and upgrades relatively easily.

The fibre-to-the-building pilot build

The fibre-to-the-building pilot will test the rollout of high speed VDSL broadband to end users in ten apartment complexes and office blocks in Carlton, Brunswick and Parkville in Melbourne. Fibre-optic cables will be delivered to a connection box (or node) located in the communications rooms of the buildings. The box, in turn, will connect to the existing in-building wiring, enabling retail service providers to deliver broadband to each individual premises.

Telstra, iiNet, M2 and Optus have signed up to participate in the pilot, which is expected to run for three months.

During this period, NBN Co. and its telco partners will evaluate all aspects of the construction, installation, operation, service performance and overall customer experience.

NBN Co has already installed VDSL2 vectoring equipment, which enables the delivery of high-speed broadband services over each building’s existing telephone cabling, in eight high rises – including a mix of apartments, and retail and office buildings.

The Government’s Strategic Review of the NBN suggested that up to 12,000 buildings, containing around one million individual premises, could be connected by FTTB.

The fibre-to-the-node pilot build

The fibre-to-the-node pilot will take place in two locations: Umina near Woy Woy on the NSW Central Coast and Epping in Melbourne’s northern suburbs. It will involve the construction of two small scale copper serving area modules and kerbside node cabinets, which will connect the NBN fibre to spare copper pairs in the Telstra pillar.

Once active, NBN Co. will invite retail service providers to participate in a limited fibre-to-the-node end user trial, which will test the delivery of high speed broadband via FTTN to up to 100 premises at each location.

NBN Co. is negotiating a collaborative agreement with Telstra to gain access to its copper access network for the purpose of the trials. This agreement will fall outside the terms of the Definitive Agreements between the two companies.

Infrastructure competition – an NBN possibility

Recently, the possibility of other network providers rolling out their own fast broadband networks in direct competition with the NBN has gained traction.

In September last year, TPG announced plans to connect approximately 500,000 apartment blocks and office buildings in highly profitable urban areas to an FTTB network.

As this plan technically counts as extending existing infrastructure within distance limits set by the former government’s NBN regulations, it does not breach the current legislation to prevent infrastructure based competition between the NBN and other network providers.

In March, Telstra responded by revealing that it too had been testing FTTB technology, which it intends to use to build its own rival network, unless the Government changes regulations to prevent infrastructure competition. If these plans go forward they would mean that NBN Co. would face competition for customers in some potentially highly profitable areas.

While NBN Co. Executive Chairman Ziggy Switkowski has stated that allowing such competition may damage the profitability of NBN Co., other stakeholders suggest that competition may offer various benefits to customers and the telecommunications industry as a whole.

A final decision on whether infrastructure competition will be permitted is expected to be made once a panel of experts, appointed in December 2013 to conduct a cost-benefit analysis and review of regulation on the NBN, submits a final report in June.

This panel of experts is made up of Dr Michael Vertigan AC as Chair, and Ms Alison Deans, Professor Henry Ergas and Mr Tony Shaw PSM.

The panel will investigate and make recommendations on NBN regulation and policy, including the role of government support for fast broadband, industry structure and competition, and other longer-term industry matters.

The pros and cons of infrastructure competition

Many telecommunications providers and other stakeholders have made submissions to the panel, putting forward their own suggestions regarding how the NBN should be structured and regulated. The possibility of infrastructure competition featured heavily in a number of these submissions, including those by TPG, Telstra, iiNet and the Australian Competition and Consumer Commission (ACCC).

Meanwhile, Mr Switkowski recently voiced concerns at a Senate hearing that if too many members of the public choose to use these alternative networks instead of the NBN, NBN Co.’s profitability may be reduced.

However, in its submission to the panel, TPG presented a case for allowing infrastructure based competition to go ahead. The company argues that the NBN “was never meant to be a fixed line monopoly” and that “infrastructure based competition delivers the best outcome to end users”.

The submission states that carriers (other than Telstra) invested many hundreds of millions of dollars building superfast networks prior to 2011 and should remain permitted to make use of those networks to compete with the NBN and other broadband providers.

This suggestion has gained broad support from iiNet, who also suggested a number of conditions to level the playing field for all telcos, including the provision that any competitor to NBN Co. also provides access to their fibre networks on a similar basis.

The ACCC submission stated that: “Generally speaking, the ACCC considers that, where it is economically efficient, infrastructure-based competition is likely to promote the long term interests of end users. Where efficient network duplication can occur, competition between networks can drive dynamic efficiencies in terms of product differentiation, innovation and timely investment. Telecommunications is a complex and highly dynamic industry, and therefore there may be benefits to be gained from encouraging network-level competition and innovation. The ACCC considers that non-NBN Co. network operators should generally not be constrained from deploying networks in competition with NBN Co, including in new developments, unless there are particular circumstances which suggest it would not be in the interests of end-users.”

Critics of allowing infrastructure competition warn that steps must be taken to avoid network providers ‘cherry-picking’ profitable areas for their own networks, as the profits generated by customers in such areas are required by NBN Co. to compensate for rolling out the network in more regional areas, which cost more to connect.

In order to address this, the ACCC suggested changes to NBN subsidy policy to better allow NBN Co. to compete, and to prevent consumers in less profitable areas from losing out.

“Where NBN Co. faces competition, its ability to compete on price may be constrained by broader objectives and/or regulation. In particular, NBN Co.’s pricing response may be constrained by a requirement to internally cross-subsidise non-commercial regions or a degree of national pricing parity. This is because under certain scenarios, infrastructure-based competition could lead to price competition only in certain geographic areas (e.g. low cost areas). Under a cross-subsidy policy, these low cost areas could have been expected to provide the revenues used to fund the cost of servicing high-cost areas. Price competition will potentially erode the funding base that may be available to support a policy of internal cross-subsidies. The ACCC considers that explicit subsidies to non-commercial areas are preferable and more transparent than internal cross-subsidies. This approach could address the dual questions of NBN Co. being better positioned to respond to competitive pressure arising from infrastructure-based competition and the broader social objective of promoting the interests of consumers in non-commercial areas, according to the ACCC.”

Telstra also addressed the issue of infrastructure based competition in its submission to the panel. Among a number of suggestions for improvements for a more effective and efficient network rollout, Telstra stressed that if infrastructure based competition with the NBN is allowed, steps must be taken to provide a level playing field for telecommunications providers to compete on.

“The extent to which facilities-based competition to the NBN is permitted is a policy decision for Government. Telstra’s position is that if facilities-based competition is permitted, there must be a level playing field between all alternative builders, whether under regulatory restrictions like the superfast broadband rules or under contractual commitments to NBN Co.,“ Telstra said.

As the panel’s report draws nearer and telcos trial or commence their rival network extensions, it looks ever more likely that FTTB will play an important role in Australia’s fast broadband network. The possibility of infrastructure competition also opens up a range of exciting possibilities for those involved in the telecommunications industry, and if it is permitted we may see a spate of new products and infrastructure projects in the sphere. The eventual face of the NBN may still be shrouded in mystery, but hopefully the release of the panel’s report will bring us a step closer to finding out.

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