The Australian government’s plans for a national fibre-based broadband network are a timely intervention to take the country towards a new era of higher productivity based on access to high speed broadband – matching its competitors’ growing capabilities.
A common thread in countries or regions where the new fibre networks are being rolled out is the existence of competition between networks. Although much of the focus of the next generation broadband debate is on replacing the Telco’s copper networks with fibre, an upgraded cable networks is equally capable of providing high speed broadband, as well as voice calls and entertainment services.
3G, and from 2010, 4G wireless networks - will also have most of the same capabilities, though this will depend on the availability of the the necessary spectrum. So it is definitely not the case that a next generation broadband network must be a monopoly; in Europe they are being rolled out first precisely where there is competition - in the Netherlands, in Sweden and parts of France. Even BT in the UK has recently announced a small step in this direction – probably under the impact of the UK cable company’s commitment to provide high speeds to almost all its customers.
On the principle that what happens in competitive markets is probably a good thing for end users, governments and regulators are justified in seeking ways, such as the NBN process in Australia, to accelerate roll out.
But what should the focus of the NBN plan be? In the Australian context, it should take full account of the Optus-owned second network which passes more than two million homes in Australia’s three most populated cities. This current generation HFC network, installed in the 1990s, can relatively cheaply be upgraded into a next generation network.
Unfortunately, Optus’ current owners show little inclination to make the necessary investment. Indeed even within their own network footprint they rely heavily on their rival, Telstra, to serve their own customers; while in the UK the cable company stands ready to service over 90% of the homes in its footprint, Optus regards only two-thirds as directly serviceable. Instead of using its own networks, it uses Telstra’s, at prices set by the regulator, the ACCC.
I have argued that this ‘dual sourcing’ approach works against end users’ long term interests because it discourages infrastructure competition. This consequence is particularly damaging at the present time, which is a ‘make or break’ moment for next generation competition. The regulator should cut back on Optus’ dependence on regulated access, and make it stand on its own two feet. Getting cheap access to a monopoly NBN might suit Optus, but it would unnecessarily deprive Australian end- users of any significant infrastructure competition.
Realistically, even if this desirable outcome emerged in the competitive areas, the scope for competition in the rest of Australia is likely to be limited. Here the NBN plan can bring forward investments and take it to parts of the country where it would not otherwise reach. The policy debate here surrounds the degree to which the new network should be ‘separated’ i.e. placed under ownership or management which is separated from the operator’s other related businesses, such as running a core network linking high level exchanges and providing retail service to customers.
Considerable impetus was given in 2005 to the separation option by the decision of the UK regulator to separate the management of BT’s access network from its other activities. This was a response to the company’s admitted manipulation of its control of access to limit competition in other markets. So far no other European firm has been separated by the regulator in this way, although regulators in the region may be given the power to use it as a ‘last resort’ remedy if there is a proven history of anti-competitive conduct, which other less drastic measures have failed to eliminate. The influential Industry Committee of the European Parliament has also suggested that it should only be used when there is no prospect of infrastructure competition.
The problem with both the ownership and the management forms of separation is that they cut off those controlling the key access infrastructure from the retail market. The gap this creates is likely to deter investment in infrastructure, since the organisation that makes it cannot rely on retailers to invest in the necessary marketing activities, except through a complex process of contracting. Quite simply this adds to investment risk, and jeopardises the considerable further investment which Australia will have to make after the first stage of the NBN is built. In the absence of demonstrable proof of the benefits of separation, it would be a considerable – probably a reckless – gamble to require it.
The NBN plan offers an imaginative vision of the future. It is time it was realised. This can best be done by working with the grain of network competition and avoiding unnecessary and extraneous regulatory complications.
Professor Martin Cave, is an adviser to the European Commission on NGN regulation.