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Monday, 01 August 2011 15:19

NBN 121 POI will raise costs and lessen competition

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Internode founder Simon Hackett was the first to sound the warning about the potential anti-competitive elements of the National Broadband Network, citing the massive cost impost on smaller ISPs wishing to provide national coverage who would have to pay to connect to the 121 points of interconnect (POI). Now, a second ISP has joined the fray, saying that providing equivalent services they already provide using the NBN would multiply their costs 15-fold - and it has a point.


The ISP, Australia On Line, told Zdnet that the broadband provider currently pays $40,000 a month to house to Telstra at seven points and would have to pay $700,000 to connect to 121 NBN points, effectively forcing it out of the ISP. This was exactly the same sort of point Internode's boss Hackett raised earlier this year.

When Hackett's objections were raised by iTWire with broadband minister Stephen Conroy at a doorstop he gave at a the Cisco Live 2011 event in Melbourne in March, his response would have raised more than a few hackles of all but the very largest broadband providers.

Senator Conroy said that start-up service providers would most likely need to use the services of wholesale aggregators rather than buying direct from the NBN.

"A new market could well be created," he said.

"Simon (Hackett) makes a number of assumptions. For instance, a start-up may not want to target the whole country but start out by servicing a local market."

When asked if having aggregators provide wholesale services to smaller ISPs would add another layer of cost, Senator Conroy said: "It will be up to the aggregators to provide a competitive service."

Let's examine these statements point by point.

CONTINUED




By "start-up service providers", Senator Conroy would no doubt have meant to include smaller ISPs like Australia On Line and perhaps even Internode which admitted to being right on the cusp of the size required (250,000 customers) to have the economy of scale to connect to a 121 POI NBN.

So the broadband minister's solution to smaller ISPs who currently are able to compete with the big players on the national stage is that they will soon be forced to buy from aggregators instead of directly from the wholesaler as they do now.

Despite Senator Conroy's protestations that it will be up to the aggregators to provide a competitive service, this indeed simply puts another layer between the retail service provider and the consumer. And why would the so-called aggregators be so willing to become second tier wholesalers to small ISPs when they could simply retail to their customers themselves.

Now to the broadband minister's second point. Start-ups may want to start out servicing a local market rather than targeting the whole.

Sure a start-up probably would but what about the dozens of small ISPs that are not start-ups like Australia On Line which have been servicing the national market for years? Are these ISPs all of a sudden supposed to shrink their national customer base and become local bit players on the same scale as start-ups?

So with the NBN under the current proposed architecture of 121 POI what it all adds up to is one government-owned monopoly wholesale provider, a small group of monolithic retail providers, massive financial barriers to entry to new players. What that in turn means is less competition and, as most of us understand, less competition means poor service and high prices.

Of course, sanity may in the end prevail and the government could mandate a return to the original model for the NBN of just 14 POI. However, of recent times sanity has sadly been in short supply.

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Stan Beer

 

Stan Beer co-founded iTWire in 2005. With 30 plus years of experience working in IT and Australian technology media, Beer has published articles in most of the IT publications that have mattered, including the AFR, The Australian, SMH, The Age, as well as a multitude of trade publications.

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