National Broadband Network Overview

12th May 2010

Background

On 7 April 2009, the Australian Government announced that it would establish a company that would invest up to $43 billion over the next eight years to build and operate a wholesale-only, open access National Broadband Network (NBN). 
“This new super-fast National Broadband Network is the single largest nation-building infrastructure project in Australia’s history. It is the most ambitious far reaching and long term nation-building infrastructure project ever undertaken by an Australian Government. Like the building of the Snowy-Hydro, like the building of the Sydney Harbour Bridge, this is an historic act of nation building”[1]
The NBN Co will essentially upgrade Australia’s fibre optic network, so that the fibre optic cables actually run directly up to the home or business, instead of being terminated at the ‘node’ (typically to a box in the neighbourhood), with the final connection to the premises being copper wire. Fibre to the premises (FTTP) is considered better than fibre to the node (FTTN) because it allows faster speeds and greater capacity for future upgrades.
The NBN will provide faster broadband services to a greater number of premises.
·         The NBN aims to deliver FTTP broadband services to 90% of all Australian homes, schools and workplaces with speeds up to 100 megabits per second (as a reference, this is about 100 times faster than those currently used by many households and businesses).
·         The remaining 10 per cent of premises (primarily in remote areas) will be connected with next-generation wireless and satellite technologies that will deliver broadband speeds of 12 megabits per second. 
 
Latest News
·         On 6 May, the Government released the NBN Implementation Report. The Implementation Study examined all aspects of the Network and its implementation and was conducted independently by McKinsey & Company and KPMG. Its key findings can be found on page XX.
·         The NBN Draft Legislation was released in February. The Government released drafts of two bills establishing a regulatory framework for the NBN Co Ltd.
 
The role of Telstra
Telstra owns and operates the largest telecommunications network in Australia. The establishment of the NBN involves the physical construction of the fibre optic cables, enhanced mobile and satellite data services, as well as reforms to the telecommunications legislative framework.
The Government is currently negotiating with Telstra about the relationship between Telstra and the NBN. 
The NBN will mean a significant change to the current arrangement whereby retail companies such as Telstra, Optus and TransACT own significant portions of Australia’s broadband infrastructure. 
 
Telecommunications Reform
On 15 September 2009 the Minister for Broadband, Communications and the Digital Economy, the Hon. Stephen Conroy announced fundamental reforms to existing telecommunications regulations.
The reforms are aimed at addressing Telstra’s high level of integration to promote greater competition and consumer benefits as well removing redundant and inefficient regulatory red-tape.
The Minister’s Media Release is available at http://www.minister.dbcde.gov.au/media/media_releases/2009/088.
1.       Addressing Telstra’s vertical integration
The legislation will allow Telstra to voluntarily submit an enforceable undertaking to the Australian Competition and Consumer Commission to structurally separate. If Telstra chooses not to structurally separate, the legislation provides for the Government to impose a strong functional separation framework on Telstra. This Bill proposes implementing a functional separation regime by altering the Telecommunications Act 1997 to require that:
2.       Addressing Telstra’s horizontal integration
Telstra will be prevented from acquiring additional spectrum for advanced wireless broadband while it:
The legislation provides scope for the Minister to remove either or both of the second and third requirements in the event that Telstra submits to the ACCC an acceptable undertaking to structurally separate.
3.       Reforms to the Competition Regime

The legislation will streamline the arrangements in Part XIC of the Trade Practices Act 1974 (TPA) which allow parties to access regulated services so that:

The legislation will also reform the arrangements in Part XIB of the TPA so that the ACCC can address breaches of competition law and conduct damaging to the market. The ACCC will no longer have to consult with a party before issuing a competition notice; a process previously prone to delay and obstruction.
In addition, the reforms include clarification that the competition notice regime applies to content services – such as subscription television services – delivered by carriers and carriage service providers.
 
4.       Strengthening consumer safeguards
Universal Service Obligation (USO)
The USO requires Telstra, as the universal service provider, to enable all people in Australia to have reasonable access on an equitable basis to standard telephone services, including payphones. The legislation will strengthen the USO by enabling Minister to specify the standards, terms and conditions of services, connection and repair periods, and reliability requirements of the standard telephone service. Telstra will be required to meet new minimum performance benchmarks.  Failure by Telstra to meet the requirements will expose Telstra to a civil penalty of up to $10 million.
The legislation also includes more stringent rules on the removal of payphones and new provisions to allow people concerned about a payphone removal to apply to the Australian Communications and Media Authority (ACMA) to direct Telstra not to remove a payphone. Failure to comply with the new rules will expose Telstra to civil penalties or on-the-spot fines.
Once the detailed operating arrangements for the National Broadband Network (NBN) have been settled, the Government will consider the broader range of issues associated with the delivery of universal access. Meanwhile the Government will maintain the USO levy at the same rate for this financial year.
Customer Service Guarantee (CSG)
The CSG currently provides that telephone companies must financially compensate customers where certain minimum performance requirements are not met. The legislation provides new minimum performance benchmarks to require telephone companies to meet or exceed the CSG time periods for a certain proportion of cases. Failure to comply may result in civil penalties or on-the-spot fines.
Priority Assistance (PA)
PA arrangements require the highest level of telephone service to residential consumers who have a diagnosed life-threatening medical condition. The legislation will require telephone companies to either offer PA services or inform the customer where they can purchase these services.
Effective Enforcement of Consumer Safeguards
The legislation will provide the ACMA with increased powers to issue infringement notices (on-the-spot) fines instead of commencing procedures in court.
5.       Removal of Unnecessary Red Tape
The Government will exempt carriers with a revenue less than $25 million per annum from paying an annual Carrier Licence charge and reporting to the ACMA, as costs of compliance is often considerably higher than their monetary contribution.
The ACMA will reduce reporting requirements under the CSG, PA and the Network Reliability Framework, so long as performance benchmarks are being met.
The legislation includes measures to repeal unnecessary accounting and operational separation requirements once functional separation is in place or Telstra has submitted an enforceable undertaking to structurally separate that is acceptable to the ACCC.
The Government will remove the requirement on Telstra to provide technical assistance to enable customers to achieve 19.2 kilobits per second internet services, as the Australian Broadband Guarantee offers broadband speeds of 512 kilobits per second or higher to Australians who cannot access metro-comparable broadband services.
Submissions made in response to the discussion paper Regulatory Reform for 21st Century Broadband: discussion paper are available at http://www.dbcde.gov.au/communications/national_broadband_network/regulatory_reform_for_21st_century_broadband/national_broadband_network_regulatory_reform_for_21st_century_broadbandsubmissions.

·         Unlike other companies in the telecommunications sector, the new company will only be allowed to offer wholesale services. This means it will not offer retail services to consumers and businesses. It will be required to treat all its customers equally, not favouring one over another.
·         The company will be jointly owned by the Government and the private sector and will invest up to $43 billion over 8 years to build the New NBN.
·         The Government will be the majority shareholder of the company and will make an initial investment of $4.7 billion in the company.  Significant private sector investment in the company is anticipated but will be capped at 49%. Ownership restrictions will be established to ensure the network remains a wholesale open access network.
·         The Government’s investment in the company will be funded through the Building Australia Fund and the issuance of Aussie Infrastructure Bonds, which will provide households and institutions the opportunity to invest in the New NBN.
·         The Government intends to sell down its interest in the company within 5 years after the network is built and fully operational, consistent with market conditions, and national security considerations.
On 28 April 2009, the Minister for Broadband, Communications and the Digital Economy, Senator the Hon. Stephen Conroy, announced that the NBN Company had been established. 
On 26 July 2009 the Prime Minister announced that Mr Mike Quigley would be the Executive Chairman and Chief Executive Officer of the National Broadband Company. On 6 August 2009 the Government announced the five other directors of the NBN Company:
·         Mr Doug Campbell
·         Mr Peter Hay
·         Ms Siobhan McKenna
·         Ms Diane Smith-Gander
·         Mr Gene Tilbrook.
On 23 December 2009 the Government announced two more Directors:
·         Mr Clem Doherty
·         Mr Terrence Francis
Background on the appointees is available in the media release of 6 August 2009 available at http://www.minister.dbcde.gov.au/media/media_releases/2009/072.
 
The NBN Company has since announced a number of appointments to its executive team including;
·         Jean-Pascal Beaufret as Chief Financial Officer;
·         Christy Boyce as Head of Industry Engagement;
·         Tim Smeallie as Head of Commercial Strategy;
·         Greg Willis as Head of Program Delivery;
·         Kevin Brown as Chief Human Resources Officer and Head of Corporate Services; and
·         Debra Connor as Company Secretary.
The NBN Company Ltd is registered with the Australian Securities and Investment Commission as A.C.N. 136 533 741 LIMITED and is a public company limited by shares, incorporated in the Australian Capital Territory. Details about the final make-up, governance and operating arrangements of the Company are still to be determined, however the Company's Constitution includes an initial basic framework.
The NBN Company Constitution is available at http://www.techwiredau.com/NBN/Constitution.pdf.
Rule 4.1.1 of the Company’s Constitution states that the object of the company is to ‘roll-out, operate and maintain a national broadband network’[2].
The share capital of the company is $100,000, with the issued share capital being $10. There are ten shares to be subscribed for by the Commonwealth valued at $1 each[3].  
Proposed legislation relating to the operation and governance of the network Company, development of strategies to maximise the scope of private investment in, and the optimal capital structure for, the Company, and how to structure the company to facilitate its privatisation, will all be considered during the implementation study.
 

Implementation
On announcing the NBN, the Government said it would:
  1. establish a company to build and operate the network and make an initial investment of $4.7 billion in the network;
  2. commence an implementation study to determine the company's operating arrangements, detailed network design and ways to attract private sector investment;
  3. fast-track negotiations with the Tasmanian Government, as suggested by the Panel of Experts, to build upon its National Broadband Network proposal to begin the rollout of a FTTP network and next generation wireless services in Tasmania as early as July;
  4. implement measures to address regional backhaul 'blackspots'[4] through the timely rollout of fibre optic transmission links connecting cities, major regional centres and rural towns - delivering improvements to telecommunication services in the short term;
  5. progress legislative changes that will govern the national broadband network company and facilitate the rollout of FTTP networks, including requiring use of fibre optic technology in future greenfield developments[5]; and
  6. commence a consultative process on necessary changes to the existing telecommunications regulatory regime[6].
These steps are outlined in more detail below.
1.      Investment
The Government will make an initial investment of up to $4.7 billion in the National Broadband Network Company.
The Government is providing $54.2 million over the next two years for the implementation and establishment of the NBN. Funding of $53.2 million in 2009?10 will be provided to the Department of Broadband, Communications and the Digital Economy (DBCDE) to conduct an implementation study into the NBN that will examine detailed engineering, commercial and structural issues and report by early 2010. The funding will also support the department in the early implementation of a network in Tasmania, implementation of the regional Blackhaul Blackspots program, and development of legislation and a regulatory framework.
The Government will also provide $0.2 million in 2008?09 and $0.9 million in 2009?10 to the Department of Finance and Deregulation to assist in the implementation and establishment of the NBN Company, given the department's role in advising the Minister for Finance and Deregulation as joint shareholder.
 

Expense ($m)
2008?09
2009?10
2010?11
2011?12
2012?13
Department of Broadband, Communications and the Digital Economy
-
53.2
-
-
-
Department of Finance and Deregulation
0.2
0.9
-
-
-
Total
0.2
54.0
-
-
-

 
2.      Implementation Study
On 6 May 2010 the Government released its NBN implementation study.   The report was prepared by McKinsey & Company and KPMG. It includes 84 recommendations for the Government and NBN and found the NBN can be built on a financially viable basis with affordable prices for consumers.
Key findings and recommendations from the Implementation Study include:
The Government is inviting comments on the study until 27 May 2010.
Details, including the full study itself, can be found at http://www.dbcde.gov.au/broadband/national_broadband_network/national_broadband_network_implementation_study.  
3.      Tasmania First
The Government has fast-tracked negotiations with the Tasmanian Government to build upon its NBN proposal and commenced the rollout of a FTTP network and next generation wireless services in Tasmania. The Tasmanian Government submitted a proposal as part of the NBN RFP process and although it did not deliver a national solution, it fitted well with the Government’s new approach. On 26 July 2009 the Prime Minister appointed Mr Doug Campbell as Chair of the new Tasmanian NBN company, Tasmanian NBN Company Limited. Tasmania will commence the fibre-to-the-home NBN project, with 5000 homes and businesses in Smithton, Scottsdale and Midway Point to be wired.
 
4.      Addressing Backhaul Blackspots
Backhaul networks consist of high capacity optical fibre transmission links that connect telephone exchanges located in cities, major regional centres and rural towns across Australia. In regional areas where competing backhaul networks do not exist, there is very little pressure on providers to offer lower prices, which means companies cannot make new services available to consumers in these areas at affordable prices. The Government is investing up to $250 million to immediately address these backhaul ‘black spots’ through the timely rollout of fibre optic transmission links to places like Geraldton (WA), Mount Gambia (SA), Broken Hill (NSW), Mildura (VIC), Mount Isa (QLD) and Darwin (NT).
 
5.      Legislation
In February, the Government released exposure drafts of two bills establishing a regulatory framework for the NBN Co Ltd.
Exposure drafts are issued to facilitate consideration of proposed legislation prior to it being introduced into Parliament.
The National Broadband Network Companies Bill 2010 sets out ownership, governance and sale arrangements for NBN Co. The bill’s main features include:
·         an obligation on both the NBN Co, and any subsidiary companies it establishes, to operate as wholesale-only companies; and
·         a prohibition on the NBN Co supplying any content service – such as broadcasting or online entertainment.
The bill also locks the Government into selling its stake in the company five years after the NBN is operational.
The Telecommunications Legislation Amendment (National Broadband Network Measures – Access Arrangements sets out access arrangements for the NBN Co which reflect the company’s status as a wholesale company.  The provisions are aimed at providing NBN Co’s customers with certainty that it will offer open and competitive access to services.
The bills can be accessed here. Explanatory memoranda accompanying the bills can be found here.
 
6.      Regulation in the Transition Period
The Government is committed to reforming the current telecommunications regulatory regime in the lead up to the rollout of the NBN. The Government sought comments on a range of options to improve the regime, outlined in the discussion paper, National Broadband Network: Regulatory Reform for 21st Century Broadband[7].
The Government’s response was released on 15 September 2009.
Submissions to the Government’s review of the regulatory framework can be found at http://www.dbcde.gov.au/communications/national_broadband_network/regulatory_reform_for_21st_century_broadband/national_broadband_network_regulatory_reform_for_21st_century_broadbandsubmissions.
The Government has also sought comment on the structure and regulation of the NBN Company itself, which was described in the Government’s discussion paper, NBN Regulatory Reform for the 21st Century.
Submissions received were published online at http://www.dbcde.gov.au/communications/national_broadband_network/nbn_company_legislation_and_access_regime/national_broadband_network_company_legislation_and_access_regime_-_submissions.
 
The termination of the NBN Request for Proposals Process
On 7 December 2007, the Minister for Broadband, Communications and the Digital Economy, Senator the Hon. Stephen Conroy announced that the Commonwealth Government, consistent with Labor’s election commitments, was committed to building a national high-speed broadband fibre-to-the-node (FTTN) network, and that it would run an open and transparent process to determine who would build the network.
The Commonwealth released a request for proposals (RFP) on 11 April 2008, seeking proposals to roll-out and operate a NBN in a single stage process. To facilitate the roll out, the Commonwealth indicated it would offer up to $4.7 billion as equity to the successful proponent(s), and consider making necessary regulatory and legislative reforms.
On 26 November 2008 the Commonwealth received proposals from six pre-qualified proponents:
1.       Acacia Australia Pty Ltd
2.       Axia Netmedia Corporation
3.       Optus Network Investments Pty Ltd
4.       the Crown in the Right of Tasmania
5.       Telstra Corporation Ltd
6.       TransACT Capital Communications Pty Ltd
On 13 December 2008 the Panel concluded that Telstra had failed to submit a Small and Medium Enterprise Plan as required under the RFP, and on this basis concluded that the Telstra Proposal had not met the conditions of participation for the RFP. Telstra’s proposal was excluded from further consideration in the RFP Process.
On 7 April 2009, the Government announced its decision to terminate the NBN RFP process on the basis that none of the national proposals offered value for money, noting that the deterioration in capital markets had severely restricted access to debt and equity funding.
“Right now under market conditions it is not possible to deliver this through pure market mechanisms, so either you sit back and wait and hope that something happens or you get on and do it. We are going to do it.”[8]
 – Prime Minister Kevin Rudd
 
Conclusion
The National Broadband Network is a significant initiative that the Government is undertaking in partnership with the private sector. It will fundamentally change many aspects of telecommunications governance, as well as improving the way we use the internet and technology in Australia. Further, it will increase productivity for business and access and affordability for consumers. There will be opportunity for consultation and participation in a many different aspects of the NBN.
The NBN represents an historic investment in Australia’s infrastructure which will have significant implications for a wide-range of industries including through:
-          the regulatory and financing of the network;
-          the design, construction, maintenance and operation of the network; and
-          the provision of an expanded range of information and entertainment services using the network.
Industries that will benefit include:

There are countless ways that businesses can engage with the Government and the new Government-owned National Broadband Company to take advantage of the many opportunities this new initiative will present. 

Hawker Britton is able to assist clients in developing these important relationships and providing strategic advice.


[1] Prime Minister Kevin Rudd, Transcript of Joint Press Conference with Treasurer Wayne Swan, Minister for Finance Lindsay Tanner and Minister for Broadband, Communications and the Digital Economy, Stephen Conroy, Parliament House, Canberra,
7 April 2009.
[2] NBN Company Constitution, available at http://www.techwiredau.com/NBN/Constitution.pdf, p. 2.
[3] ibid., Rules 10.2 and 10.3, p. 6.
[7] National Broadband Network: Regulatory Reform for 21st Century Broadband, available at http://www.dbcde.gov.au/__data/assets/pdf_file/0004/110002/NBN_Regulatory_Reform_for_the_21st_Century_Broadband_low_res_web.pdf.
[8] Prime Minister Kevin Rudd, Transcript of Joint Press Conference with Treasurer Wayne Swan, Minister for Finance Lindsay Tanner and Minister for Broadband, Communications and the Digital Economy, Stephen Conroy, Parliament House, Canberra,
7 April 2009.
 

 

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