the national broadband network january 12 - … national broadband...the national broadband network...

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Contents

Background ................................................................................................................................................... 3

Recent Developments ................................................................................................................................... 5

About the NBN Company .............................................................................................................................. 9

Implementation Study ................................................................................................................................ 11

Discussion Papers ........................................................................................................................................ 12

NBN Business Case ...................................................................................................................................... 13

NBN Corporate Plan .................................................................................................................................... 14

The role of Telstra ....................................................................................................................................... 14

NBN Legislative Framework ........................................................................................................................ 21

Tasmania First ............................................................................................................................................. 23

Addressing Backhaul Blackspots ................................................................................................................. 23

Rollout ......................................................................................................................................................... 23

Conclusion ................................................................................................................................................... 25

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Background

On 7 April 2009, the Australian Government announced that it would establish a company that

would invest up to $36 billion1 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”2

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. This is represented in

the diagram below.

1 Total capital investment in the NBN was revised down from $43 billion to $36 billion primarily due to the agreement reached

with Telstra. 2 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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On announcing the NBN, the Government said it would:

1. establish a company to build and operate the network and make an initial investment 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 2009;

4. implement measures to address regional backhaul 'blackspots'3 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

new developments4; and

6. commence a consultative process on necessary changes to the existing telecommunications

regulatory regime5.

This paper explores how the Government has progressed each of these steps, as well as other

developments and implementation milestones that have been reached.

3 See http://www.dbcde.gov.au/communications/national_broadband_network/national_broadband_network_Regional_Backbone_Blackspots_Program. 4 See http://www.dbcde.gov.au/all_funding_programs_and_support/national_broadband_network/fibre_in_new_developments. 5 See http://www.dbcde.gov.au/communications/national_broadband_network/regulatory_reform_for_21st_century_broadband and http://www.minister.dbcde.gov.au/media/media_releases/2009/021

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Recent Developments

In a press release on 19 December 2011, Minister Conroy congratulated Vodafone for connecting its first trial customers to the NBN, and welcomed the telco’s entry into the fixed line market in Australia. Minister Conroy said Vodafone’s decision to enter the fixed line services market demonstrates that structural reform is increasing retail service competition. Minister Conroy’s media release is available here.

On 13 December 2011, Minister Conroy addressed the National Press Club in Canberra. In his speech, the Minister spoke about the principal arguments for the NBN, and compared it to the alternate policy suggestions. The text of the speech is available here, with the slide presentation available here.

On 5 December 2011, NBN Co committed to keep its wholesale prices fixed for five years, with subsequent increases limited to being less than the rate of inflation. NBN Co’s media release is available here.

On 30 November 2011, NBN Co released its 12‐month Wholesale Broadband Agreement, which sets out the commercial arrangements and obligations between NBN Co and its customers. NBN Co’s media release is available here.

Definitive Agreements June 2011 o On 23 June 2011, Telstra signed Definitive Agreements with NBN Co and the

Commonwealth for its participation in the rollout of the NBN.

o For Telstra, the agreement is subject to the satisfaction of a number of conditions,

including ACCC acceptance of Telstra’s structural separation undertaking and approval

of its migration plan. Approval was obtained from Telstra shareholders at the

company’s AGM on 18 October 2011. Telstra’s Media Release is available here.

o The agreement with Telstra will be managed by a new entity, the Telecommunications

Universal Service Management Agency, or TUSMA (previously referred to as USO Co).

The legislation to establish TUSMA was introduced to the House of Representatives on

2 November 2011 and is available here. The legislation has been referred to both the

House of Representatives Standing Committee on Infrastructure and Communications,

and the Senate Environment and Communications Legislation Committee, which is due

to report on 27 February 2012.

o A joint Media Release from the Prime Minister, Senator the Hon. Penny Wong; Minister

for Finance and Deregulation and Senator the Hon. Stephen Conroy; Minister for

Broadband, Communications and the Digital Economy is available here.

Optus also signed an agreement with NBN Co on 23 June 2011

o The key to the deal is Optus’ agreement to progressively migrate HFC customers to the

NBN as it is rolled out.

o The agreement is expected to enhance take‐up rates, thus improving NBN’s revenue

plan.

o Optus estimates the agreement is worth around $800million post tax.

o Optus’ Media Release is available here. NBN Co’s Media Release is available here.

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o A joint Media release from the Hon. Wayne Swan MP and Senator the Hon. Stephen

Conroy is available here.

The Government released a policy statement on 23 June 2011,that outlines the overall policy

framework and sets out the key terms of the agreement with Telstra Universal Service Policy in

the National Broadband Network environment.

On 1 June 2011, NBN Co reached an agreement with Silcar Pty Ltd for construction worth

$380 million over two years to roll out the network in Queensland, New South Wales and the

ACT.

On 18 May 2011, the Prime Minister and Minister for Broadband, Communications and the

Digital Economy launched the first mainland NBN services in the regional city of Armidale in

northern New South Wales. Armidale is one of five first release sites where the NBN is rolling

out on mainland Australia.

o Media release: Historic Launch of NBN in Armidale

On 6 May 2011, NBN Co announced the interim satellite solution, bringing forward the

introduction of enhanced satellite broadband services to remote rural areas.

o Media release: Better broadband for Rural and Regional Australians

o NBN Co announcement: Remote Australians the priority for new NBN Interim Satellite Service

On 28 April 2011, NBN Co announced the commencement of the next phase of construction in

seven communities in Tasmania including Deloraine, Kingston Beach, George Town, Sorell,

South Hobart, St Helens and Triabunna, connecting over 11 100 homes and businesses.

o Media release: NBN rollout in Tasmania: next phase

o Website: www.nbntasmania.com.au

On 12 April 2011, legislation to provide the regulatory framework for the National Broadband

Network (NBN) came into force.

o NBN legislative framework

On 11 March 2011, the Minister announced the completion of the 449 kilometre Perth to

Geraldton Regional Backbone Blackspots Program (RBBP) link.

o Media release: Perth to Geraldton fibre optic link

On 16 March 2011, the Minister announced the completion of the 146 kilometre Victor Harbor

fibre backbone link. These links form part of the Australian Government's $250 million RBBP,

which is delivering 6000 kilometres of fibre backbone across regional Australia, predicted to

benefit around 400 000 people.

o Media release: Victor Harbor fibre backbone link complete

On 1 March 2011, the House of Representatives passed the legislative framework for the NBN.

Also on 1 March 2011, the House of Representatives established a Joint Committee on the NBN to inquire into and report on its rollout every six months. The Independent MP Rob Oakeshott has been appointed as the Chair of the Committee, and the remainder of its membership is comprised of equal numbers of Government and Opposition members, along with representatives from the minor parties.

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On 14 February 2011, the Government released the executive summary of an independent assessment of NBN Co Limited’s Corporate Plan. Greenhill Caliburn provided a commercial assessment of the plan, identifying and analysing its key assumptions and potential risks.

On 10 February 2011, Telstra and NBN Co announced that they had finalised key commercial terms to allow for the more efficient rollout of the NBN. These pave the way for NBN Co to make use of Telstra's assets to roll out the NBN and for Telstra to decommission its copper network.

On 9 February 2011, debate on the legislative framework for the NBN commenced in the House of Representatives. This followed the introduction of two NBN bills into the Parliament on 25 November 2010 to ensure the NBN operates into the future on a wholesale‐only, open and equivalent basis.

The Government released NBN Co Limited's Corporate Plan on 20 December 2010, providing further detail for industry and the public on the rollout of the NBN. The Government also released the Statement of Expectations that sets out the government's expectations of the company as it rolls out the NBN. The Statement comprises the Government's response to the Implementation Study.

On 29 November 2010, the House of Representatives sat for an extra day and passed the Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2010 to separate the wholesale and retail arms of Telstra, paving the way for the implementation of the NBN.

On 24 November 2010, the Prime Minister released the NBN Business Case Summary, an analysis based on detailed engineering, financial and business analysis undertaken by NBN Co. over the last twelve months. The Business Case Summary sets out the key objectives and priorities for NBN Co for the three years from 1 July 2010 to 30 June 2013. The Prime Minister indicated that the document was being released “to facilitate the passing of the Telecommunications Structural Separation Bill in the Senate.” 6

On 22 October 2010, the Government released a discussion paper, 'Implementation of Universal Service Policy for the transition to the National Broadband Network environment', that raised a number of matters for public comment, including the delivery of the Universal Service Obligation and public interest services, and possible funding and institutional arrangements for delivering outcomes. The submissions period has now closed and the Department is currently reviewing those received.

o Media release: Consultation on Universal Service Policy o Universal service policy in the National Broadband Network environment

On 20 June 2010, NBN Co announced it had reached a Financial Heads of Agreement with Telstra that would provide access to Telstra facilities and the progressive migration of Telstra traffic onto the National Broadband Network, subject to regulatory approval. Further details on pages 10‐11.

On 17 June 2010, the Senate Select Committee on the National Broadband Network released its Final Report addressing progress of the NBN. The report is available at http://www.aph.gov.au/Senate/committee/broadband_ctte/report/index.htm.

On 6 May 2010, the Government released the NBN Implementation Study. The Implementation Study examined all aspects of the Network and its implementation and was conducted

6 Prime Minister, Transcript of Joint Press Conference, 24 November 2010, www.pm.gov.au/press‐office/transcript‐joint‐press‐conference‐13.

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independently by McKinsey & Company and KPMG and is available at http://www.dbcde.gov.au/broadband/national_broadband_network/national_broadband_network_implementation_study.

The NBN Draft Legislation was released in February 2010. The Government released drafts of two bills establishing a regulatory framework for the NBN Co Ltd.

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About the NBN Company

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.

The NBN Co website is http://www.nbnco.com.au/.

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.

Details on the membership of NBN Co’s Board are available at http://www.nbnco.com.au/about‐us/our‐

people/board.html

Details on the membership of NBN Co’s Executive Team are available at

http://www.nbnco.com.au/about‐us/our‐people/executives.html.

Company information

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’7.

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 each8.

7 NBN Company Constitution, available at http://www.techwiredau.com/NBN/Constitution.pdf, p. 2.

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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.

The NBN Co Annual Report 2009‐10 is available at

http://www.nbnco.com.au/wps/wcm/connect/main/site‐base/main‐areas/publications‐and‐

announcements/annual‐reports/nbnco‐annualreport2010.

Investment

According to the NBN Co 2009‐10 Annual Report, the “exact timing and quantum of Federal

Government funding for NBN Co will be determined after the Government has formally responded to

the Implementation Study and after finalisation of the Definitive Agreements with Telstra”9

The Business Case Summary indicates that “at the end of the contribution and deployment period, the

total capital expenditure (capex) is estimated by NBN Co to be $35.7 billion”. It goes on to explain that

this is lower than the original $42 billion figure due to the pending deal with Telstra which reduces

overall capex due to efficiencies as a result of the re‐use of infrastructure and also the use of longer

term leases.

The Government has allocated money in the last two Budgets to the Department of Finance and

Deregulation, the Department of Broadband, Communications and the Digital Economy, and the

Australian Competition and Consumer Commission (ACCC) to support the implementation and

regulation of the National Broadband Network.

201011 Budget

National Broadband Network — implementation

Expense ($m)

2009‐102010‐112011‐12 2012‐132013‐14

Department of Broadband, Communications and the Digital Economy

‐0.9 14.0 3.9 2.6 1.8

Department of Finance and Deregulation ‐ 0.6 0.6 0.5 0.4

Total ‐0.9 14.6 4.4 3.1 2.2

NBN Co Limited — regulatory framework

Expense ($m)

2009‐10 2010‐11 2011‐12 2012‐13 2013‐14

Australian Competition and Consumer Commission 3.4 5.8 5.9 4.5 4.5

8 ibid., Rules 10.2 and 10.3, p. 6. 9 NBN Co Annual Report 2009‐10, http://www.nbnco.com.au/wps/wcm/connect/a69fc5804479c76aa31fabc72ea64545/NBNCo_AnnualReport_2010.pdf?MOD=AJPERES&CACHEID=a69fc5804479c76aa31fabc72ea64545, p. 23.

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Expense ($m)

2009‐10 2010‐11 2011‐12 2012‐13 2013‐14

Related revenue ($m)

Australian Communications and Media Authority 3.4 5.8 5.9 4.5 4.5

See http://www.budget.gov.au/2010‐11/content/bp2/html/bp2_expense‐04.htm for further details.

Implementation Study

In the 2009‐10 Budget, funding of $53.2 million in was allocated to the Department of Broadband,

Communications and the Digital Economy (DBCDE) to conduct an implementation study into the NBN.

“The Implementation Study examined the Government’s coverage, commerciality and competition

objectives as well as the detailed operating arrangements of NBN Co Limited, its ownership and

structure, ways to attract private sector investment and longer term privatisation.” Public comments

and submissions were sought by 27 May 2010.

On 6 May 2010, the Government released the NBN Implementation Study report. The report was

prepared by McKinsey & Company and KPMG. It included 84 recommendations and found that the NBN

can be built on a financially viable basis with affordable prices for consumers.

Key findings and recommendations from the Implementation Study include that:

The $43 billion total capital cost of the NBN is an over‐estimate and there are opportunities to significantly reduce the build cost;

The peak investment required by Government is estimated at $26 billion by the end of year 7, of which $18.3 billion will be required over the following four years;

Government should retain full ownership of the NBN until the roll out is complete to ensure that its policy objectives are met – including its competition objectives;

The fibre component of the NBN should be extended from 90 to 93 per cent and cover the 1.3 million new premises expected to be built by 2017‐18;

Entry level wholesale prices on the fibre should be set at around $30‐35 per month for basic broadband 20Mbps plus voice service, to drive affordable retail prices and better value for money for consumers compared to what is available today;

Fibre to the premises is widely accepted as the optimal future proof technology with wireless broadband a complementary rather than a substitute technology;

Next generation wireless and satellite services will deliver peak speeds of at least 12 Mbps (and much higher for many wireless users). Satellite services will deliver average data rates which are more than 20 times higher than most users of these technologies experience today and much higher than average DSL usage today;

NBN Co can build a strong and financially viable business case with the Study estimating it will be earnings positive by year six and able to pay significant distributions on its equity following completion of the rollout; and

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The Government can expect a return on its equity investment sufficient to fully cover its cost of funds.

Details, including the full study itself, can be found at

http://www.dbcde.gov.au/broadband/national_broadband_network/national_broadband_network_im

plementation_study

Discussion Papers

National Broadband Network: Regulatory Reform for 21st Century Broadband (April 2009)

The Government 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.

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

Broadband10.

The Government’s response was released on 15 September 2009.

Submissions received are published online here.

Implementation of Universal Service Policy for the transition to the National Broadband Network

environment (October 2010)

The Department of Broadband, Communications and the Digital Economy released a discussion

paper in October 2010 seeking feedback on a number of matters including the delivery of the

Universal Service Obligation and possible funding arrangements. Submissions were due in

November 2010 and are currently being considered by the Department.

Universal Service Policy in the National Broadband Network environment

On 23 June 2011, the Department of Broadband, Communications and the Digital Economy

released a policy statement that outlines the overall policy framework and sets out the key

terms of the Definitive Agreements with Telstra

Alongside the policy statement, a net costing advice paper was also released here.

10 National Broadband Network: Regulatory Reform for 21st Century Broadband, available at http://www.dbcde.gov.au/all_funding_programs_and_support/national_broadband_network/regulatory_reform_for_21st_century_broadband

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NBN Business Case

On 24 November 2010, the Prime Minister released the NBN Business Case Summary, setting out key objectives and priorities for NBN Co for the three years from 1 July 2010 to 30 June 2013.

The Business Case noted that the major objectives and timelines are “dependent on the rapid resolution

of Government policy dependencies as well as the progress of the negotiations with Telstra, all of which

appear to converge towards the end of the 2010 calendar year.”11 The NBN Business Case identified five

critical dates in the overall implementation plan.

December 2010 Complete Telstra negotiations Finalise agreements with Telstra on decommissioning of copper and hybrid fibre coaxial (HFC) networks and infrastructure usage; subject to Conditions Precedent.

April 2011 Start Customer Trial Capability to connect at least one mainland based retail service providers (RSPs) with trial customers offering a free subset of products to test preparedness. All NBN Co support with manual processes.

June 2011 Completion of Telstra Definitive Agreements

All Conditions Precedent satisfied, including enabling legislation, ACCC and Telstra shareholder approvals.

September 2011 Ready for First Commercial Service Capability to fulfil, activate and assure a limited number of products with multiple RSPs and up to 6 per cent of premises passed. Supported with a combination of basic semi‐automated and manual processes.

December 2011 Ready for Business as Usual Roll‐out Capability to fulfil, activate and assure an increased number of products with multiple RSPs and up to 19 per cent of premises passed. Supported with a combination of advanced semi‐automated and manual processes.

August 2012 Ready for Market Fully automated systems, no limitation in activating as a percentage of premises passed. Multiple RSPs certified; critical volume available and predictable. Operations capability can fulfil and assure the NBN Co suite of products at scale.

Significantly, the Business Case confirmed:

a general timeline for product release;

that the rate of return is in excess of the government bond rate; and

that the total capital expenditure will be $37.5 billion, (less than the previous estimate of $43 billion) due to the agreement with Telstra.

11 NBN Business Case, http://resources.news.com.au/files/2010/11/24/1225960/243308‐nbn‐business‐case.pdf, p.8.

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NBN Corporate Plan

On 20 December 2010, NBN Co’s Corporate Plan was released to the public which incorporates forecasts for the next 30 years.

The Corporate Plan shows that the Government’s financial investment in the NBN will be repaid with interest and at a significantly higher rate than the government bond rate (7.04% compared with 5.39%).12 The total capacity expenditure for the project is expected to be $35.9 billion, with $27.5 billion coming from the Government. By June 2013, it is expected that the NBN Co will have passed 1.7 million homes and businesses across the country, 1.3 million of which will be with fibre.13

A key assumption of the Corporate Plan is that the Government will be able to finalise Definitive Agreements with Telstra.

The role of Telstra

Background

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 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.

TelstraNBN Co Agreement

On 10 February 2011, Telstra and the NBN Co announced that they had finalised key commercial terms

for the rollout of the NBN. The Minister for Broadband, Communications and the Digital Economy,

Senator The Hon Stephen Conroy, welcomed the announcement, which he said will “pave the way for

NBN Co to make use of Telstra’s assets to rollout the NBN and for Telstra to decommission its copper

network.”

Minister Conroy’s media release is available at

http://www.minister.dbcde.gov.au/media/media_releases/2011/131.

“To support these arrangements, the Government and Telstra have also reached in‐principle agreement

for the package of measures announced by the Government mid‐last year to facilitate the transition to

the NBN.”

12 NBN Corporate Plan, http://www.nbnco.com.au/wps/wcm/connect/eea11780451bd3618ebfef15331e6bbb/101215+NBN+Co+3+Year+GBE+Corporate+Plan+Final.pdf?MOD=AJPERES, p.134. 13 ibid.

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“[T]hese important measures include a public information campaign; assistance to retrain Telstra’s

workforce to deploy the NBN; and implementing the Government’s reforms to the delivery of the

universal service obligation and other public interest services.”

“The Government, Telstra and NBN Co are now working constructively together to finalise the detailed

commercial documentation. Once the definitive agreements have been considered the Government,

Telstra and NBN Co will be in a position to provide more information on the arrangements.”

“Telstra will now commission an independent expert report for their shareholders to consider.

Importantly, the Australian Competition and Consumer Commission (ACCC) will also scrutinise the terms

as part of its consideration of Telstra’s Structural Separation Undertaking.”

Financial Heads of Agreement

On 20 June 2010, the Government announced that it had concluded negotiations with Telstra, and that

they had entered into a Financial Heads of Agreement worth an expected value of $9 billion.

The media release is available at http://www.minister.dbcde.gov.au/media/media_releases/2010/060.

“The Agreement between NBN Co and Telstra provides for:

The reuse of suitable Telstra infrastructure, including pits, ducts and backhaul fibre, by NBN Co

as it starts to rollout its new network – avoiding unnecessary infrastructure duplication; and

The progressive migration of customers from Telstra’s copper and pay‐TV cable networks to the

new wholesale‐only fibre network to be built and operated by NBN Co.”

“Combined with Australian Government public policy reforms, Telstra estimates that the agreement

announced today will deliver Telstra a post‐tax net present value of approximately $11 billion. The

payments by NBN Co to Telstra would be made over a number of years as the rollout progresses”.

“The Australian Competition and Consumer Commission (ACCC) will review the competition aspects of

this agreement as envisaged in the Telecommunications Competition and Consumer Safeguards Bill,

which the Government still hopes to pass to provide greater certainty to industry.”

“In support of the Agreement, the Australian Government will progress public policy reforms to support

the transition to NBN to which Telstra attributes a value of approximately $2 billion. It will:

Establish a new entity, USO Co – with Commonwealth funding of $50 million in 2012‐13 and

2013‐14, increasing to $100 million per annum thereafter. The remaining funding that USO

Co requires will be contributed by industry, as it is now with final arrangements subject to

industry and stakeholder consultation;

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Provide $100 million to Telstra to assist in the retraining and redeployment of Telstra staff

that will be affected by this very significant reform to the structure of the

telecommunications industry; and

Require NBN Co to be the wholesale supplier of last resort for fibre connections in

greenfield developments from 1 January 2011.”

These measures were provided for in the 2010‐11 Budget.

“USO Co will assume responsibility for most of Telstra’s Universal Service Obligations for the delivery of

standard telephone services, payphones and emergency call handling from 1 July 2012. This will ensure

that essential communications services are protected and assist the structural reform of the industry.”

“Telstra, NBN Co and the Commonwealth agencies will now move to negotiate detailed Definitive

Agreements, which is expected to take some months. When these negotiations are concluded the

Definitive Agreements will be put to Telstra’s shareholders and the Government, for final approval.”

Signing of the Definitive Agreements

On 23 June 2011, The Government, Telstra and NBN Co signed Definitive Agreements for the rollout of

the NBN.

The agreement is subject to the satisfaction of a number of conditions, including ACCC acceptance of

Telstra’s structural separation undertaking and approval of its migration plan and obtained approval

from Telstra shareholders at the company’s AGM on 18 October 2011.

Key Components of the agreement are as follows:

Telstra agrees to progressively disconnect all copper‐based Customer Access Network

services and broadband services on its HFC cable network and will migrate services onto

NBN‐based services

Telstra will provide NBN Co with large‐scale access to certain infrastructure

The Government has agreed to a package which includes increased funding for the delivery

of the Universal Service Obligation (USO)

Telstra and NBN Co have agreed to key product feature and price commitments relating to

NBN Co’s basic voice and data offering.

Telstra’s Media Release is available here.

A joint Media Release from the Prime Minister, Senator the Hon. Penny Wong; Minister for Finance and

Deregulation and Senator the Hon. Stephen Conroy; Minister for Broadband, Communications and the

Digital Economy is available here.

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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:

Telstra conduct its network operations and wholesale functions at arm’s length from the rest of

Telstra;

Telstra provides equivalent price and non‐price terms to its retail business and non‐Telstra

wholesale customers; and

this equivalence of treatment is made transparent to the regulator and competitors via strong

internal governance structures.

Consistent with these provisions, the agreement between NBN Co and Telstra announced on 20 June

2010 will be submitted to the ACCC for consideration. The Chairman of the ACCC has said:

“Structural separation will mean the NBN operator has a clear incentive to treat access seekers

on an equivalent basis. Therefore, the government’s announcement provides an opportunity to

deal head‐on with the difficulties arising from the vertical integration of the current

incumbent.”14

2. Addressing Telstra’s horizontal integration

The Government initially announced that Telstra would be prevented from acquiring additional

spectrum for advanced wireless broadband while it:

remains vertically integrated; and

14 Parliament of Australia, Hansard, 24 November 2010, http://www.aph.gov.au/hansard/reps/dailys/dr241110.pdf, p.52.

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owns a hybrid fibre coaxial cable network; and

maintains its interest in Foxtel.

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.

Following the agreement between NBN Co and Telstra on 20 June 2010, Telstra confirmed that it had

received “written confirmation from the Prime Minister that Telstra would be able to bid for Long Term

Evolution wireless spectrum should the transaction be completed”.

The agreement also sees that Telstra will become a wholesale customer of NBN Co for its voice and

broadband traffic. However, Telstra will continue to use its cable network to meet its pay TV contract

with Foxtel.

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 ACCC will determine up‐front terms and conditions for a three to five year period,

following consultation with industry;

the ACCC can determine principles to apply for longer periods; and

the ACCC can make binding rules of conduct to immediately address problems with the

supply of regulated wholesale services

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

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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.

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Submissions made in response to the discussion paper Regulatory Reform for 21st Century Broadband:

discussion paper are available here.

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.” 15

– Prime Minister Kevin Rudd, 7 April 2009

15 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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NBN Legislative Framework

The regulatory framework for the NBN is established through two bills that were introduced into

Parliament on 25 November 2010.

National Broadband Network Companies Bill 2010

The National Broadband Network Companies Bill 2010 sets out ownership, governance and sale

arrangements for NBN Co. The bill’s main features include:

defines NBN corporations to include NBN Co Limited, NBN Tasmania and any company NBN Co

Limited controls

limits NBN Co Limited to operating as a wholesale‐only telecommunications company in terms

of the services and goods is supplies, as well as the investments it makes

establishes powers to require functional separation, and transfer or divestment of assets

clarifies that the Minister may make licence conditions, including to require NBN Co Limited to

provide or not provide specified services

establishes the framework for the eventual sale of NBN Co Ltd

enables the making of regulations to set limits on private control of NBN Co Limited post‐

privatisation

establishes reporting obligations on NBN Co Limited once no longer wholly Commonwealth‐

owned

exempts NBN Co Limited from the Public Works Committee Act 1969.

The Companies Bill also provides that the Government must retain full ownership of NBN Co Limited

until the NBN rollout is complete. This will give the Australian Government greater flexibility to pursue

its objectives in the rollout of the network.

The sale of NBN Co Limited will depend on:

the Communications Minister making a declaration that the NBN is built and fully operational

the Productivity Commission conducting an inquiry into and reporting on regulatory, budgetary,

consumer and competition matters relating to the NBN

a Parliamentary Joint Committee considering the findings of that report

the Finance Minister making a disallowable declaration that conditions are suitable to sell NBN

Co Limited

Parliament not disallowing that declaration.

Telecommunications Legislation Amendment (National Broadband Network Measures—Access

Arrangements) Bill 2010

The Telecommunications Legislation Amendment (National Broadband Network Measures – Access

Arrangements sets out access arrangements for and rules for the supply of services by NBN Co. It

introduces open access, transparency and non‐discrimination measures for NBN corporations, under

clear oversight by the Australian Competition and Consumer Commission.

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The Access Bill amends the Telecommunications Act 1997 and the Trade Practices Act 1974 (TPA) to

establish access and equivalence obligations for NBN Co, additional to those in the TPA.

Amongst other things, the NBN Access Bill:

makes all services provided by NBN Co Limited ‘declared’ and thereby subject to supply and

equivalence requirements and ACCC oversight

establishes the mechanisms to ensure that the terms and conditions relating to the supply of

services by NBN Co Limited are transparent

requires NBN Co Limited to offer services on an equivalent basis, with discrimination only

allowed where it aids efficiency and in other limited circumstances, subject to ACCC oversight

requires the ACCC to publish details from access agreements with different terms from the

standard ones already published, to provide a high level of transparency.

The NBN Access Bill also establishes a level regulatory playing field for carriers who build or upgrade

certain fixed‐line superfast access networks after the introduction of this Bill to Parliament (exempting

point‐to‐point services to government and corporate users). Under these provisions, carriers are

required to:

offer a Layer 2 bitstream service over this infrastructure

meet access, non‐discrimination and transparency obligations in relation to that service.

These requirements will commence on Proclamation or otherwise 12 months from Royal Assent, giving

industry time to adjust. The Bill provides for Ministerial exemption powers.

Provision is also made to simplify the making of industry codes and standards for fibre infrastructure

and services. Once in place, these will ensure new fibre‐to‐the‐premises networks that are built are

consistent with NBN technical specifications.

The Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2010

The Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2010

introduced a package of legislative reforms aimed at enhancing competitive outcomes in the Australian

telecommunications industry and strengthening consumer safeguards.

The package has three primary parts: addressing Telstra's vertical and horizontal integration;

streamlining the access and anti‐competitive conduct regimes; and strengthening consumer safeguard

measures such as the Universal Service Obligation (USO), the Customer Service Guarantee (CSG) and

priority assistance.

23

Consistent with the market structure that will be delivered through the NBN, Part 1 of Schedule 1 of the

Bill inserts a new Part 33 in the Tel Act which provides a framework for Telstra to voluntarily structurally

separate.

The Bill was passed by the Parliament in December 2010.

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. On 12 August 2010, the Prime Minister and the Minister

for Broadband, Communications and the Digital Economy officially launched the first services provided

over the NBN in Tasmania, in the Stage 1 communities of Midway Point, Scottsdale and Smithton. In

April 2011, construction began on Stage 2 of NBN Co’s rollout in Tasmania with more than 11,000 homes

to be connected in the communities of Deloraine, Kingston Beach, George Town, Sorell, , South Hobart,

St Helens and Triabunna.

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. In November 2010,

the Minister for Broadband Stephen Conroy announced that 3,000 of the 6,000 kilometres of fibre optic

transmission links had already been completed, with the remainder to be completed by the end of 2011.

In March 2011, the Minister opened the Perth to Geraldton and Victor Harbor links. Links in Darwin,

Broken Hill and South West Gippsland are amongst those locations still to be completed.

Rollout

The Government has established NBN Tasmania Limited as a subsidiary of NBN Co, to build and

operate the NBN in Tasmania. The first three stages of the Tasmanian rollout were announced

as part of the five‐year fibre rollout to a total of 200,000 premises. Stage 1 of the Tasmanian

rollout commenced on 12 August 2010.

24

Nextgen Networks has completed construction of 3,000km of new fibre optic backbone

transmission links with a further 3,000 to follow, as part of the Government’s program to

address Regional Backbone Black spots.

NBN Co announced five “first release” sites that will be part of live trials of its network design

and construction methods. The first release sites are:

o A part of the suburb of Brunswick in Melbourne.

o An area of Townsville covering parts of the suburbs of Aitkenvale and Mundingburra.

o The coastal communities of Minnamurra and Kiama Downs south of Wollongong.

o An area of west Armidale, NSW, including the University of New England.

o The rural town of Willunga in South Australia.

In July 2010 NBN Co announced a further 19 mainland sites as part of its next rollout stage,

including five sites adjacent to its first release sites. The 14 new sites are:

o Bacchus Marsh and South Morang (Melbourne) in Victoria.

o A part of inner Northern Brisbane, Springfield Lakes and Toowoomba in Queensland.

o Riverstone in Western Sydney and Coffs Harbour in NSW.

o Modbury and Prospect in South Australia.

o Victoria Park in Perth, Geraldton and Mandurah in Western Australia.

o Casuarina in the Northern Territory.

o Gungahlin in the ACT.

In October 2011 NBN Co announced a further 28 sites for its next rollout stage. The 28 sites are:

o Blacktown, Dapto, Gosford, Lidcombe, Long Jetty, Penrith, Richmond, Sawtell,

Strathfield and Wollongong in NSW.

o Darwin in the Northern Territory.

o Nudgee in Queensland.

o Aldinga Beach, Port Augusta, Port Elliot, Stirling, Strathalbyn and Yankalilla in South

Australia.

o Launceston and Somerset in Tasmania.

o Ballarat Central, Melbourne City, Melton and Tullamarine in Victoria.

o Applecross, Meadow Springs, Pinjarra and South Perth in Western Australia.

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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:

Telecommunications and broadcasting

Information technology and government service delivery

Construction and engineering

Finance and financial services

Advertising and marketing

Legal

Retail services

Education

e‐Health

Climate change and environmental management

Energy and water efficiency

Local government and planning

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.

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