Analysis by Grahame Lynch*
Regulatory victories at Telstra have been rare as hen’s teeth in recent years but if the FTTN RFP didn’t get the champagne pouring in Exhibition St and George St then yesterday’s landmark ACCC decision on wholesale line rental and local call resale regulatory exemptions likely will.
Sure, Telstra didn’t completely get its own way. It sought exemptions across 5.4m lines, pretty much anywhere with at least one competitive DSLAM installed with the background competition provided by HFC, VOIP and wireless. The ACCC didn’t completely agree, only looking at a narrower definition of DSLAM competition and only applying the exemptions to exchange “serving areas” with a minimum of three competitor DSLAMs or 14,000 addressable customers (the ACCC’s analysis finds that exchanges supporting under 14,000 customers tend to have just one or two competitor DSLAMs installed). Exchanges that are “capped” due to space or port limitations will also be excluded from the exemption – these number about 50 or so in total.
Nevertheless, Telstra still gets around 75% of what it sought – exemptions on 4m lines, evidently three-quarters being better than nought.
The immediate losers from the draft decision are the corporate and government business units at Optus, Macquarie and AAPT/PowerTel.
Most of the competitive carrier DSLAM and MSAN (multi service access node) installations are what Optus cutely describes as “consumer grade.” This means they don’t support the detailed intelligent network services that are standard on Telstra’s wholesale voice offering – features such as fax duet, huntgroups and related voicemail, variable call forwarding and linehunt. Corporate and government customers tend to want standardised offerings across all their sites – if the supply of Telstra-resold services are now threatened and the DSLAM/MSAN alternatives are inferior thenthese customers might well decide to revert to Telstra directly.
The representative of these customers, the Australian Telecommunications Users’ Group, evidently thinks so, having opined in an earlier submission that the various alternatives to the Telstra offerings simply weren’t up to scratch.
The onus is now on these carriers to either strike a negotiated amenable supply deal with Telstra – as some such as People Telecom and Commander seem to have done – or simply decide how much these customers are worth to them and upgrade their “consumer grade” kit accordingly.
NO CHOICE? In the end, the ACCC really had no choice but to make the decision it made. But it did involve a massive change of heart given it has previously deferred rethinks on these issues pending the outcome of its infrastructure audit.
Telstra sneakily snookered the ACCC by wheeling out the originating father of the regulator’s pet competition regulation theories, Dr Martin Cave, and deploying him as a critic of its “multilayered” approach to competition access. How can one climb the ladder of competition if one is discouraged from using one’s own existing or potential competitive network builds by regulated resale access, he argued? The ACCC had to agree or appear to be intellectually fraudulent. These things might not seem important to outsiders but they weigh heavily in the internal culture there.
But in being consistent with past philosophies, the ACCC has had to deal with the accusation that it is migrating competition into a commercial mineshaft, with the prospect that these same customers will be thrown off their DSLAMs and onto a FTTN bitstream service in the not-so-distant future. The ACCC has some choice words to say about this, stating it is “cognisant of access seekers’ concerns that a widespread fibre deployment has the potential to render much DSLAM equipment obsolete.”
The ACCC adds it “is of the view that the move to ULLS-based provision of fixed voice services prior to a fibre upgrade may be in the long term interest of end users in the sense that it could allow access seekers to build their reputation and customer base through this deeper level of investment because of the ability to provide differentiated products.”
It also believes that carriers can return their DSLAM investments within just two years of installation and that an increased ULLS base actually makes the transition to fibre more viable.
In this light, it was interesting that when I asked Communications Minister Stephen Conroy about this very issue last Friday he spontaneously brought up the idea that DSLAMs were also subject to ever accelerating depreciation cycles.
COMPETITIVE CARRIER SUPPORT EBBING? Clearly there is little residual support at either ministerial or regulatory level for the notion that FTTN will lead to stranded investments in apparently expensive DSLAMs and the ruination of competitor economics.
With Telstra estimating that the current ULLS price equates to just one-third of its true TSLRIC+ cost, based on actual Australian conditions, and the ACCC TSLRIC+ reckoning that a DSLAM returns its investment in two years (I have heard that it is closer to 18 months) a big plank in the defence argument mounted by competitive carriers for their current regulatory agenda seems to be slipping away.
There is now a greater onus on the G9 (or G7 or G8) to ensure that it strikes the right strategic pitch in its response to the FTTN RFP. If its members seriously see a future in fixed network provision, it might even want to consider trying to win it!
However, given that lead member Optus has previously expressed the sentiment that it sees such tender processes as mere mechanisms to moderate the monopolistic tendencies of the incumbent, it’s not clear whether any bid it comes up with singularly or collectively will be considered credible or even compliant.
What’s more, the RFP response timeline is nearly one-quarter exhausted and the G9 leaders didn’t hold their first meeting on it until yesterday—it’s the regulatory managers who have been doing all the talking to date when there’s more of a requirement to bring in the financiers and engineers at this ripe stage. Perhaps a little richly, several members are asking for an extension of time!
If there’s one thing the telecommunications industry needs to understand about Conroy it is the urgency with which he is approaching his task. As early morning and late night activity is now the norm at Telstra, I understand, that under Conroy, it is now also the case in his ministerial office and at the Department (the stereotype of the public sector 4.51pm knockoff seems to have gone forever).
By contrast, the casualness that seemed to characterise Opel’s “business development” now seems to be repeating itself at G9. They need to pick up their pace.
* Grahame Lynch is the editor and Publisher of Australia's telecommunications industry daily, Communications Day (www.commsday.com). This is an edited extract of a comment that originally appeared in Communications Day on 30 April 2008.