Telstra/NBN FAQ

Richard Chirgwin analyses the proposed deal between the federal government and Telstra, explaining how it will work, what it will mean for your broadband connection and the impact on competition.

By now, you know that Telstra and NBN Co have agreed to the broad details of how they will co-operate with each other rather than trying to destroy each other, and ho much this will cost.

So: NBN Co is to hand over $9 billion (over time) for access to Telstra’s network and customers; and the government will top that up with $2 billion for other purposes, including retraining some Telstra staff, restructuring the Universal Service Obligation and so on.

So here’s a handy guide to what the agreement means.

What is NBN Co paying for?

To succeed, NBN Co needs to provide fibre to your place. Then, it needs to multiply that connection by eight million.

Digging that many trenches is costly. For example, just to cross a moderately-busy intersection, because you couldn’t find any spare duct space already crossing it, could easily cost you $20,000.

In paying $5 billion for access to the Telstra network, NBN Co is betting that it would have cost more to duplicate Telstra’s network – and, because this network access payment includes backhaul (the connection from a fibre area to the rest of the network), it’s decided that it has at least an adequate deal on Telstra backhaul as well.

Then there’s the migration of customers, the other $4 billion of the $9 billion being paid to Telstra.

In essence, NBN Co is buying wholesale customer access. In other words, instead of having to compete head-to-head with Telstra to connect my home, NBN Co will pay Telstra to take over the wholesale relationship.

However, NBN Co isn’t taking over the retail relationship – I won’t be getting a bill from NBN Co for my phone and broadband access. That relationship will be between me and a retailer. So Telstra’s bet is that it will be able to retain the retail customer relationships – that it will be able to compete on equal terms with the rest of the industry for retail customers.

Doesn’t this mean NBN Co is buying Telstra’s network?

No. Some headlines may have said this, but the agreement does not.

Telstra has agreed to decommission its copper as the NBN is rolled out. But it’s not “selling its network” to the NBN.

For example: I live in the Petersham exchange area. NBN Co will arrive first, building one or several fibre serving areas to cover the Petersham exchange area. When fibre blankets the whole area, Telstra and NBN Co will work out a set of procedures to pass customer connections from the Telstra network to the NBN Co network. NBN Co won’t be assuming ownership of the Telstra copper; the copper will simply stop carrying the traffic.

The advantage for both NBN Co and Telstra is that they won’t have to get into a head-to-head competition for individual customers. Telstra will have to compete with other retail service providers offering services in my area, but it won’t have to fight a war on two fronts, retail on one side and wholesale on the other side.

Before we assume that “everybody would want fibre immediately”, remember that the speed you get on that fibre will depend on how much speed you want to pay for. If you’re happy with (say) 20 Mbps, then your choice between networks would probably be based on price.

Because of the impact of retail plan pricing on consumer take-up of NBN services, infrastructure competition would result in less-than-100% take-up of the NBN. It would, at least, slow down household adoption of NBN connections.

So the deal eliminates the risk for NBN Co that it would have to try and execute its rollout under a competitive threat from Telstra’s copper network – although there will still be competition from Telstra’s wireless network.

What about competitive fibre that’s already there?

It will stay there – and presumably, it will stay in service.

There’s nothing that says that NBN Co will get monopoly access to all customers, everywhere in the country, or that companies that have already built fibre networks have to give up their customers or their investments.

What is common to the competitive fibre networks that exist today?

There are a number of long-haul fibre networks. Some are intra-state, a lot of them are inter-state. The longest of these stretch from Brisbane to Perth. Then there are smaller intra-city fibre networks (a good example is the network run by VicTrack covering Melbourne and surrounds).

NBN Co won’t be competing with backhaul networks – it will be a customer. Networks capable of connecting NBN Co points of interconnect will be able to bid on that traffic.

Nor will the intra-city networks designed mostly to serve business customers be overrun by NBN Co. If a company is buying multiple Gbps of capacity between its data centre and its backup facility, it’s not going to be forced onto the NBN Co network.
Some infrastructure will be “stranded” – the DSLAMs that provide most of Australia’s broadband connections, for example – but existing fibre networks are in far less danger of becoming stranded investments.

Does this make “technical” competition obsolete?

For years, the quality of the DSL network has been a competitive differentiator between different broadband providers – but it’s not the only differentiator.

If you looked at the difference between a high-quality provider and the “cheap and cheerful” end of the market, the DSL infrastructure isn’t what most distinguishes one from the other. The difference is more likely to be in how the two providers manage their backbone networks, and how much of that backbone bandwidth they offer to individual customers.

If you’re on an ADSL2+ service at ten dollars a month, the peak-hour crawl, when you’re lucky to get 128 Kbps, isn’t because you’re on a poorly-performing DSLAM – it’s because the provider is skimping on the transit bandwidth it buys to connect its customers to the Internet.

Other differentiators between providers include their customer service (including which country the call centre is in), their technical skill at resolving complaints, the quality of their management and billing systems, their ability to cut deals covering the content you want, how well they manage their servers, and a host of other factors – all of which will still matter in a post-NBN world.

Isn’t this just a political outcome?

Certainly. The whole Telstra – NBN issue was created by governments (over many years, considering how important Telstra’s vertical integration is in this debate). Because of the importance of telecommunications to the country at large, practically anything that happens in this industry is going to be a political issue (the writer is old enough to remember when “timed local calls” was a hardy perennial offering at leat yearly sustenance to telco writers).

Anybody who imagined that something as important as telecommunications market structures could be resolved without any political overtones is naive – too much so to be taken seriously.

The important question is whether it’s a bad outcome.

It may be – but it’s also hard to see, realistically, how a better outcome could be devised. Telstra’s executives are required to try and take care of their shareholders; NBN Co’s charter was to build its network with or without Telstra’s co-operation.

Co-operation, however, is cheaper and easier for NBN Co, and probably better for Telstra as well.

Will customers and competitive carries be as happy with the outcomes? It’s too soon to tell. 

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