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Wednesday, 24 August 2011 10:25

NBN Co talks up competition from mobile services

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NBN Co's submission to the ACCC on Telstra's structural separation undertakings goes to great lengths to counter the argument that restrictions stopping Telstra marketing mobile services as a direct substitute for the fixed network NBN will be detrimental to mobile competition, but in so doing it once again raises the spectre of the NBN being undermined by mobile broadband services.

According to the submission, the Subscriber Agreement between Telstra and the Government, "maximises the uptake of services supplied using the NBN by Telstra's existing customers and ensures that Telstra is incentivised to support the NBN's fixed line connections in the future, including'¦restrictions'¦against Telstra promoting wireless services as substitutable for fibre'¦ although Telstra remain free to compete in the market for the supply of wireless services."

The submission explores the distinction between these two concepts in some detail. Reassuringly it states that "The NBN will utilise FTTP technology and hence be complementary to (rather than competitive with) wireless technologies. The complementarity of fixed and wireless technologies is reflected in the business models of many telecommunications providers. Indeed both Telstra and Optus emphasise that as a full service telecommunications provider their ability to bundle both fixed and wireless services is a key competitive advantage."

It re-assures us that "The provisions against Telstra promoting wireless services as substitutable for fibre services will have no effect on competition for wireless broadband services. It is important to note that Telstra does not currently promote its wireless services with reference to its fixed network. To the contrary, Telstra promotes its wireless network as superior to other wireless networks in terms of speed, coverage, reliability and value for money. This is consistent with Telstra's business model of being a full service telecommunications provider and being able to meet customers fixed and wireless telecommunications needs."

It re-iterates the oft-repeated statement that "wireless network speeds are limited by both distance and contention within a cell's coverage," and adds "the ability of wireless to compete at higher bandwidths is largely determined by the number of base stations deployed." Then it spells out the very real danger that, without restrictions, Telstra could seriously white ant the NBN by luring customers onto its wireless network.

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"The payment to Telstra for the disconnection of copper and HFC premises, without the restrictions on promotion of wireless services as substitutable for fibre services and the provisions for a deduction in the disconnection payment for wireless substitution, could create significant commercial incentives for Telstra to migrate its customers to the Telstra Next-G wireless networks, because Telstra would then avoid the need to pay NBN any ongoing access fees and retain a higher proportion of its revenues, but still collect the payment for disconnections.

"Telstra could then use some of the disconnection payments from NBN Co to finance marketing and sales activities including additional subsidies on wireless handsets or customer premises equipment. Telstra's ability to support a large number of customers on its wireless network is further enhanced through its ability to leverage recently remediated infrastructure (for the NBN Co rollout) to deploy additional base stations and new wireless technologies such as LTE'¦ Telstra's dominant position in retail markets means it is in a position to influence the migration choice of many customers."

The issue of the disconnection fee here seems somewhat irrelevant. Telstra is being paid billions of dollars for its overall role in the NBN, a large portion of this for the use of its facilities. There is nothing to stop it using this money rather than the disconnection fee to fund the marketing of its mobile services.

And the submission notes "The wireless promotion and substitution protections in the Subscriber Agreement have no impact on Telstra's ability to develop its wireless network as it sees fit. It can promote wireless services as complementary to fibre services and it is not required to use the NBN fibre network to connect Telstra mobile base stations. It would not prevent Telstra from offering to the end user a wireless only service."

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So just how much with this restriction inhibit the marketing of Telstra's mobile services? Very little, according to Telstra. The submission quotes CEO, David Thodey, saying: "The only constraint we have is to directly promote wireless instead of the NBN fixed broadband, so that's very very specific'¦It is only a very limited constraint of a direct substitution for NBN fixed broadband, so I don't think it's an issue at all."

OK I'm convinced. The restrictions placed on Telstra won't harm the mobile services market. But what I am not sufficiently convinced of is that, despite its ability to deliver 100Mbps consistently and support huge traffic volumes, the NBN will be a sufficiently attractive alternative to mobile broadband to sufficient customers to enable it to achieve the uptake it needs to be commercially viable on the projections it has made, at least until and unless really high bandwidth and highly popular applications and services emerge at price points that give them wide appeal.

And its failure to achieve this goal would be a most unfortunate outcome. As the submission notes: "The Government's policy objectives to provide superfast broadband to all Australians in the national interest over the long term would in part be thwarted by wireless substitution as the productivity gains and future proofing of the fibre-based fixed line network cannot be achieved to the same degree by wireless network services owing to technical limitations."

But in the end the market will determine the outcome, and I can't see how Government in the future could get away with any intervention to favour NBN over mobile broadband. Taxing the latter perhaps? Only joking!

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