Broadband Briefing: Fibre connections in new developments - competition sacrificed in new Gillard Government rules

In Australia, it is estimated that around 150,000 new residential dwellings are built annually. What kind of broadband connection is being built in these new dwellings?

Traditionally, Telstra has provided the connection.  (In fact, by law, under the ‘universal service obligation’ Telstra is required to connect every home in Australia – at least to a standard suitable for voice telephony.)  Usually Telstra installs a traditional copper wire – the same as it has used for many years. 

In the last few years, though, developers have increasingly wanted to install fibre optic cable – so they can provide an additional selling point to potential purchasers. 

Telstra will do this if the developer asks for it – but it charges the developer a fee per home connected. 

Alternatively, developers can go to a range of other operators which have emerged in recent years, which specialise in installing high speed fibre optic networks in new developments.

What we have therefore is the market responding to demand and increasingly installing fibre infrastructure in new developments around Australia.

What has been the response of the Gillard Government?  They don’t much like the market at work: they prefer the central planning approach of a government owned monopoly NBN Co.

The Gillard Government has tried three different approaches to the issue of fibre connections in new developments over the last year and a half, with new rules first announced to come in from 1 July 2010, a date later pushed back to 1 July 2011.

Under the approach which finally passed into law, in June 2011, the government owned NBN Co is stated to be the fibre network ‘provider of last resort’ in developments of over 100 premises.  For smaller developments, Telstra will be the network and services provider.  In all cases, the property developer must now bear a new responsibility for installing so-called ‘fibre ready’ trenching and ducting (into which the fibre will ultimately be laid.)

These arrangements will strangle the emerging competitive market for the provision of fibre optic networks in new developments.  Despite the rhetoric of NBN Co being the ‘provider of last resort’, in reality these arrangements create a strong financial disincentive for developers to deal with any provider other than NBN Co.

Installing the fibre-ready infrastructure, which is mandated by the legislation, costs around $800. According to evidence to a parliamentary inquiry, the full cost of installing a fibre connection is $1,500. So a developer is up for an additional incremental cost of at least $700 per lot if the developer chooses to contract with a competitor to NBN Co, rather than, as the government wants it to do, just leave it and wait until NBN Co comes along.

The competing private sector operators find themselves up against a government funded competitor with enormously deep pockets which is prepared to install fibre at zero cost. Their business prospects are dim indeed.

This is not the only threat to competition in Labor’s approach to fibre in new developments.  The legislation also says that the standards as to what constitutes “fibre ready” are to be determined by the Minister.  In reality, as is clear from the legislation and the explanatory memorandum, NBN Co will set the standards, because what the Minister determines will be based on advice from NBN Co. 

Competitors will be forced by law to adopt NBN Co’s standards.  It is as if Virgin were forced to adopt standards set by Qantas – not by an independent regulator.

Who will be the victims of this heavy handed set of rules?  It will be Australians moving into new developments.

They might have expected their new home to be connected to fibre and thus to receive high speed broadband.  But unfortunately under these rules they will now be at the mercy of NBN Co’s responsiveness and timeliness.  This could mean waiting a very long time - given that the NBN rollout schedule does not see the network finished until 2020. 

When the Bill went through Parliament, the Coalition suggested a better approach. We moved an amendment that would have allowed developers to acquire fibre networks from private sector providers, and in due course require NBN Co to purchase that network.

That amendment would have opened up competition, given developers choice, imposed cost discipline on NBN Co, and facilitated speedier network roll-out and the completion of developments, for the benefit of residents.

Sadly, the Gillard government refused to accept this amendment.  It seems not to care much about the interests of Australian householders – or the businesses which have been competing with Telstra in building fibre networks in new developments.  Its priority is to prop up the interests of its centrally planned monopoly built at vast taxpayer expense. 

A central theme of the Gillard Government’s NBN is that competition is being sacrificed.  When it comes to the market for building and operating new fibre based networks in new developments, the same approach is very much in evidence.