A shake-up for the NBN and the wider telecommunications industry

In brief

The Federal Government has announced new regulatory measures that it hopes will create a more competition-friendly telecommunications environment and ensure that the National Broadband Network (NBN) is rolled out across the nation as quickly as possible. Two new Government policy papers released last week set out the new measures. Partner Ian McGill and Associate Byron Frost provide an overview of key developments.

Background

The Federal Government released two new policy papers last week:

• the Telecommunications Regulatory and Structural Reform Policy – this policy sets out the Government's overall regulatory policy and its response to the Vertigan Panel's 53 recommendations; and
• an updated Telecommunications infrastructure in new developments policy – this policy is open for comment until 15 January 2015.

Telecommunications Regulatory and Structural Reform Policy

The Government has adopted three overarching principles for its changes to the regulatory regime, which it describes as 'a very significant shift from the current model'.¹ The three overarching principles are:

• regulation should allow competition at both the retail and wholesale/infrastructure levels;
• to the greatest extent possible, industry players should be treated consistently under the regulatory framework; and
• new high-speed broadband access networks should be vertically separated.

According to the Government's policy document, the new regulatory model will provide clear and consistent rules for carriers looking to invest in new high-speed broadband access networks, ensure access for retail service providers on a structurally separated basis and deliver competitive neutrality for NBN Co and other players.

The Government will implement the changes gradually with a transition period running in 2015-16 and the new regulatory regime commencing on 1 January 2017.

Some of the key regulatory changes are as follows.

During the transition period

• New carrier licence condition until 2017 – effective from 1 January 2015, providers of superfast broadband networks will be required to provide services to residential customers on a functionally separated basis.
• Adoption of wholesale price cap model – NBN Co will have the flexibility to adjust prices on a non-uniform basis, subject to price caps. This change will not increase NBN Co wholesale prices in either urban or regional areas above the current levels approved by the Australian Competition and Consumer Commission in the NBN Co Special Access Undertaking.
• Current cross-subsidies to be abolished – a new funding approach to be adopted for funding of NBN Co's non-commercial areas. At this stage, the Government has tasked the Bureau of Communications Research to assess the costs of NBN Co's fixed wireless and satellite services and provide options to the Government to replace the current cross-subsidy arrangements.
• Separate accounts – NBN Co will be required to maintain separate accounts for its satellite, fixed wireless, FTTX, HFC and transit network. This will facilitate a future restructure or disaggregation of NBN Co.

From 1 January 2017

• Structural separation will remain the default regulatory position for new high-speed fixed line broadband networks.
• Competitively neutral arrangements will be established for the funding of the NBN's non-commercial fixed wireless and satellite services.
• NBN Co last resort legislation to be introduced requiring NBN Co to operate as the broadband infrastructure provider of last resort.

Telecommunications infrastructure in new developments policy

Previously the Government's position was that private providers could supply telecommunications to new estates but the scope for competition by non-NBN Co providers was inhibited by the fact that NBN Co was not required to levy upfront charges.

To increase competition, the Government is now proposing that developers and home-owners served by NBN Co in new developments will meet some of the costs of the infrastructure upfront. It is worth noting that cost recovery will be capped to ensure these charges do not have a material impact on housing affordability.

Subject to comments received and subject to certain transition arrangements contemplated by new policy, the policy will take effect from 1 March 2015.

Potential impact on the telecommunications industry

The Government has said that the new policy positions will provide increased 'certainty for an industry that has been undergoing regulatory change since the original NBN was announced in 2007'.²

The changes should facilitate more competition in the market, as among other things, networks that compete with NBN Co will be required to provide wholesale access on a non-discriminatory basis and developers and consumers will have greater choice for providers, which should see costs decrease. The changes also prepare NBN Co for possible privatisation in the future and this may influence competitors in structuring their businesses over the medium term.

Expect more changes to NBN Co's operations to come as the Government continues to try and deliver a more competitive telecommunications environment and a quick roll-out of the NBN. The Government's stated aim is to have the NBN pass 12 million homes and businesses by 2020.³