Australia is ready for the National Broadband Network
World-class broadband infrastructure is a national imperative for Australia. We are a developed, educated, creative and aspiring nation. But Australia also has a small population, is relatively isolated internationally, and we contend with large distances domestically. The lack of high-speed broadband is already a significant drag on our international competitiveness.
There is a national consensus in favour of the substantial investment required to achieve world class broadband infrastructure in Australia. The Rudd Government won a clear electoral mandate for its broadband policy, and a key objective emerging from the 2020 summit was “building and enabling the use by all Australians of a world class broadband system to foster full participation in the digital economy”.
All that presently stands between Australia and world class broadband infrastructure is the current regulatory regime. The Government request for proposals to build the National Broadband Network (NBN) was needed precisely because no one will invest in next generation, fibre-based network infrastructure under the regulation that presently exists.
The National Broadband Network needs a tailor-made regulatory framework.
Telstra’s submission to the NBN regulatory review details the changes that are needed.
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Telstra’s proposals for regulatory change are supported by three expert reports
Professor
George Yarrow
Professor George Yarrow and Dr Christopher Decker from the Regulatory Policy Institute, Oxford UK have submitted a paper – Reflections on policy issues raised by next-generation access networks in communications.
“The introduction of next-generation access networks (NGANs) in communications changes the market and technological context in which public policy operates. It does so in a way that, in terminology used in the economic analysis of innovation, can be said to be ‘drastic’ in nature... ”
…”demand (for use of NGANs) assessments are likely to be particularly uncertain. In the colloquial way of putting things: we are not only dealing with known unknowns, but also with unknown unknowns.”
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Brian Williamson is a director of Plum Consulting in the UK. He specialises in the analysis of economic, public policy and regulatory issues in the communications sector and recently advised BT Openreach, Ofcom and the European Commission on approaches to the regulation of next generation access. His paper is called Next Generation Networks: why a fresh regulatory approach is required.
“Investors in the National Broadband Network, competing infrastructure and services provided over NGA will also want to know how regulation might develop in future. Without a credible commitment to a sound framework market players will factor in the risk of something less favourable emerging, and outcomes now and in the future will be inferior as a result.”
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Professor
Martin Cave
Professor Martin Cave is an adviser to the European Commission on NGN regulation. His paper is call Vertical Integration and the construction of NGA (next generation access) networks.
“It is important to bear in mind the two relationships between regulation and structure: while regulation properly responds to structure it also shapes it – in the sense that regulating an asset as a bottleneck will probably keep it one, even if it could be replicated.”
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Separation a very bad idea for Australia
The Government has not mandated separation for the National Broadband network (NBN). The Government’s objective is open, equivalent access.
Yet some proposed bidders and their fellow travellers (referred to here as ‘the separationists’) are actively agitating in favour of the view that structural, functional or other forms of enforced separation would be a superior model to the vertically integrated business that Telstra presently embodies.
Regardless of what the proponents of structural separation suggest, every major carrier worldwide, be it incumbent or entrant, is vertically integrated. Both economic theory and industry practice show the strong efficiencies and other benefits of vertical integration in networked industries.
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We are not alone against separation
Telstra is not alone in making the case that structural separation is a very bad idea. Last week we even saw SingTel arguing strongly against the need for structural separation in its home market. Now an impressive line-up of international experts has added forceful, logical argument, facts and data to the case against structural separation.
Kip Meek
Kip Meek is a former Ofcom Commissioner who had the job of negotiating the undertakings that form the basis of the separation of British Telecom. In his submission he says:
“The UK form of separation was designed to address severe problems of non-price discrimination which, on the basis of evidence I have seen, do not exist to the same extent in Australia … I would not recommend that the UK form of separation be used as a starting point in the Australian context.”
“I am also of the view... that more radical measures, such as structural separation, would involve substantially escalated risk and costs. The demand risks and uncertainties associated with building an NGN, especially where it is intended to replace the PSTN, seem to me to raise doubts about whether a non-vertically integrated approach would be able to achieve the necessary level of investment co-ordination.”
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Professor
Martin Cave
Professor Martin Cave, is an adviser to the European Commission on NGN regulation, and he says separation is not an appropriate remedy in an NGN world and that there has been a misunderstanding in Australia about the UK separation model:
“The UK model of functional separation, although only implemented thirty months ago, already seems at risk of being overtaken by technological change. The model is, in large part, premised on local loop unbundling being the primary access service and accordingly, the boundary line between Openreach and the rest of BT is, with some limited exceptions, drawn at the copper access network. However, when in due course the network migrates to an NGA, these assumptions will no longer hold true, and the organisational framework devised for the legacy network will ill fit the changed network architecture of an NGA. Further….there is some evidence emerging from the UK that the functional separation framework may actually be slowing the migration to an NGA in the UK.”
“My knowledge of the Australian debate over separation remedies suggests that there is some misunderstanding of the problems for which separation can be a possible remedy. This may have encouraged a misplaced faith about the relevance and utility of the UK model of functional separation to Australia.”
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Dr Mark Jamison
Dr Mark Jamison is a US academic, and James Sichter, a former senior executive with the leading US competitor Sprint. They say that the US experience shows clearly that separation is a costly diversion:
“Business separation creates regulatory costs. The separation creates interest groups, some of whom benefit from the separation and some of whom can gain strategic advantage by changing the separation. These groups compete in the regulatory arena rather than in the marketplace...”
“Behavioral rules are more effective than separation measures. While structural or functional separation were often justified ex ante as necessary for bringing about the benefits of competition, actual experience showed otherwise. For example, rules requiring equivalent competitor access to OSS (operational supports systems) were less intrusive and were more efficient for providing equivalent internal and external access to bottleneck facilities than any form of structural or functional separation.”
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Professor
George Yarrow
Professor George Yarrow is a leading UK economist and utility regulator and his colleague Dr Chris Decker, is a fellow economist. They say:
“Whilst it is true that integrated and non-integrated firms face different incentives, that is just the other side of the coin from the fact that integration has real economic effects. It would be folly to argue that, as a matter of principle, equivalence or non-discrimination means that the incentives of all competitors in, say, service activities should be fully aligned, irrespective of whether alignment has pro- or anti-competitive effects.”
“Equivalence/non-discrimination is a key principle in access regulation, but it is important to distinguish it from full equalisation of business circumstances and of incentives. Equivalence/non-discrimination is appropriately promoted insofar as it serves to prevent anti-competitive outcomes, but to go further would itself be inefficient and anti-competitive in its effects, leading to more restricted markets and lower investment levels.”
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The time has come to draw the line under the separation debate. The sooner we recognise that the arguments for separation – particularly in a next generation world – do not hold up, the sooner we can actually focus on the real issues that the transition to a new network involves.