NBN Co's proposed variation to the Special Access Undertaking (SAU) is likely to be rejected by the ACCC after Telcos voice strong opposition. Why the Telcos have opposed the SAU is discussed in Innovationaus.com

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Telstra, Optus and the Competitive Carriers Coalition (CCC), an industry body representing smaller telecommunication companies including Vodafone, have resoundingly called for the Australian Competition and Consumer Commission (ACCC) to reject NBN Co’s proposed variation to its Special Access Undertaking (SAU).

On 27 May 2016 NBN Co submitted a proposed variation to its SAU to the ACCC with the goal of formally incorporating Fibre to the Node (FTTN), Fibre to the Basement (FTTB) and Hybrid Fibre Coax (HFC) as technologies to which the SAU will apply.

The SAU specifies charges, terms and conditions relating to NBN Co’s wholesale products and related services to organisations that are known as Access Seekers.

Access Seekers may act as a Retail Service Provider that connects customers to the National Broadband Network (NBN) or as a Tier 2 wholesaler that resells access to smaller Retail Service Providers.

NBN Co is also proposing to reduce the amount of information provided to Access Seekers on the progress of the rollout by moving from quarterly to annual progress reporting and to vary the dispute resolution arrangements.

At first glance the proposed variations may not appear to be substantial. However, on closer inspection, the proposed variation to the SAU would reduce the effectiveness of the SAU to the point where the ACCC or other organisations would have little recourse after handing NBN Co the authority, for the next 24 years, to make unapproved changes to technologies, pricing and other terms under which NBN Co supplies services.

The ACCC should reject the proposed variation to the SAU in its entirety. It is apparent that NBN Co has not carried out “extensive consultations” with access seekers and other interested parties, and has set about convincing the ACCC to accept a variation to the SAU that is little more than a Trojan horse.

Telstra states in its submission that it “supports the proposed variations to incorporate additional network technologies.”

Telstra’s support for the MTM is unremarkable, as the decision by the Coalition Government to include FTTN and HFC means that NBN Co will have entered into agreements with Telstra totalling about $16 billion or more by 2020.

Optus and the CCC have called on the ACCC to take the opportunity to review whether or not the introduction of the multi-technology mix (MTM) approach is in the long-term interests of end-users (LTIE).

The MTM induced degradation of reliability, service quality and the need to reconsider the uniform pricing model for the NBN are the tip of the iceberg that is sinking the ‘SS NBN’.

Optus states that it “disagrees that the assessment of this variation should disregard any review of the existing commitments. Optus considers that this variation, by all purposes and intent, is not a variation of a minor nature.”

The recently announced 25 per cent reduction in HFC connections highlights the problems that NBN Co is having with the network design and construction.

NBN Co is likely to struggle to complete the rollout by 2020 and technology selection stability is already under pressure with NBN Co executives finding it necessary, on a regular basis, to talk up a wide range of technologies that they suggest could be used to provide gigabit speeds over the NBN.

Telstra sees the uncertainty as a backwards step and it states that “it is inappropriate to include clauses on issues which have not yet been agreed between NBN Co and Access Seekers.”

If the SAU is accepted by the ACCC, NBN Co is likely to further reduce the information made publicly available about the rollout and this is not in the LTIE. Telstra states that “NBN Co needs to commit to the provision of accurate and timely rollout information.”

“The SAU could be strengthened with respect to NBN Co’s commitments to provide rollout information and undertake consultation. Improvement in these areas would be in the LTIE and ultimately improve customer outcomes.” Telstra goes on to state that “this is critical in ensuring a positive customer experience during the transition to the NBN.”

The CCC focuses attention on how the shift to the MTM has affected pricing and performance due to “the nature of the FTTN, FTTB and HFC services which are to be incorporated into the MTM model are, in fact, far more similar to the existing (‘non-NBN’) services currently being provided than was, or is, the case with FTTP.

The CCC therefore submits that, when considering the pricing of MTM services, it is even more critical that these services are priced at a level that is no higher than other currently available services offering equivalent functionality.”

Telstra and Optus both highlight the need for pricing to be revisited with the existing model introducing performance and capacity bottlenecks. The question of whether there should be different charges for services delivered over different network types has been highlighted as a key issue for the ACCC to consider.

According to Optus “the operation of the existing SAU, and the material change in circumstances with the move to an MTM approach, should give the ACCC both the impetus and opportunity to review the application of the SAU at least for the MTM technologies, forecasted to cover 75 per cent of premises.

“In addition to this broader point, Optus also believes that the ACCC should use the review to consider issues raised by the industry about CVC [Connectivity Virtual Circuit] pricing.”

When the ACCC approved the Access Virtual Circuit (AVC)-CVC pricing model in the 2013 SAU, Optus argues that “this assessment was based on the market facts and expectations at the time. These facts have changed. The significant growth in demand for high bandwidth services undermines many of the reasons for approval.”

“Optus believes that the AVC-CVC pricing construct is not promoting the LTIE. The ACCC should think carefully before enabling this price structure to be locked in for a 24-year period for the MTM technologies.”

Telstra states that it “also disagrees with a number of the charges included in the SAU variation such as the application of differing charges for different network types for some services. Telstra considers that this is not in the best interests of customers who are likely to have little discretion over choice of network.”

In summarising its view on the proposed variations to the SAU, Optus states that the “LTIE [is] promoted by rejecting [the] variations.”

“If the ACCC accepts the proposed variations it will have little role in the terms and conditions of NBN products supplied over the FTTx and HFC networks for the remaining life of the SAU – around 24 years.

“In effect, acceptance of the SAU would permit NBN Co to largely self-regulate the terms and conditions of existing, and new products yet to be developed supplied over the FTTx and HFC networks which will cover around 75% of Australian premises by 2020.”

In my own submission to the ACCC, I highlighted that NBN Co’s proposal to vary the definition of the network boundary and to introduce co-existence and remediation provisions that would exist for the next 24 years was not in the LTIE and would create confusion, decrease reliability and performance, increase customer complaints and prevent the ACCC from intervening.

Optus states that it “strongly disagrees with defining a standard HFC installation as a self-install option, where end-users install NBN Co’s NTD [Network Terminating Device] and RF Splitter. This is likely to cause significant problems for some end-users. The SAU should be amended to make clear that NBN Co is responsible for the installation of the HFC NTD within a standard installation.”

“Variations relating to co-existence and remediation have the effect of altering the line speed available to end-users and add significant uncertainty as the quality of the service. Allowing these provisions within the SAU locks them in for 24 years and removes the ability of the ACCC to intervene should it be established that the provisions have detrimental impacts.”

NBN Co’s proposed variation to the SAU has opened Pandora’s Box and it is timely for the ACCC to take a broader look at how NBN Co’s regressive MTM will affect access seekers, competition and consumers.

The MTM NBN is a sub-standard second rate network design and the ACCC should take this into account when considering variations to the SAU, and potentially asking NBN Co to revisit earlier undertakings that are not in the LTIE.

The first step is for the ACCC to reject the proposed variation to the SAU and to provide NBN Co with guidance on matters raised by Telstra, Optus and the CCC and in the other submissions.

This guidance should not be limited to changes proposed in NBN Co’s submission but should more broadly look at the effect the MTM will have and how the market has changed with the growth in new products and services, particularly video and audio streaming services.

Finally, the ACCC should advise NBN Co that there is a need for a fresh approach to the “extensive consultations” that it claims to have conducted. This time NBN Co should actually talk to community groups, access seekers, business, industry groups and consumer organisations.

Dr Mark Gregory is a Senior Lecturer in the School of Engineering at RMIT University