SPECIAL REPORT: The national broadband network is throwing up unexpected competitive challenges for players in the communications sector.
SPECIAL REPORT: The recent boardroom upheaval at listed company Vocus Communications has echoes of a larger, sector-wide shift under the shadow of the national broadband network roll-out.
His resignation came four months after Vocus struck an $807 million deal to buy Nextgen Networks, which it has described as the missing piece in its infrastructure network.
TPG shares have crashed by more than 35 per cent over the past month, with most of that decline happening immediately after the company lodged its interim results with the ASX.
Vocus shares have fallen by a similar amount, albeit with a more gradual decline over the past two months.
A big factor is an emerging awareness about how much the nation’s telcos, and particualrly TPG, will need to pay to gain access to the NBN in future.
Australian government business NBN Company is midway through the national roll-out of its network, which is due to completed by 2020.
In Western Australia, the network extends to 320,000 premises that are able to order the service.
To date, about 125,000 premises in WA are active on the NBN network, which is an amalgam of multiple access technologies – satellite, fibre-to-the-premises, fibre-to-the-node, fixed wireless and an upgraded version of Telstra’s legacy copper wires.
“It takes a while for the retailers to come in and sell to those homes and connect the service,” Mr Morrow said.
“We expect about three quarter of homes and businesses will be connected.”
Households and businesses can choose between about 40 retail service providers to connect to the NBN.
Mr Morrow said that came with positives and negatives.
“The good is that people have a choice; they can have low cost or get more service at a premium,” he said.
“The bad is that it gets more complex; who is doing what, is it NBN Co or the retailer?”
In practice, most households and businesses have opted for the four major players in the telco sector.
Telstra, TPG, Optus and Vocus account for 94 per cent of wholesale access services over the NBN network, according to the Australian Competition and Consumer Commission.
Telstra holds nearly 50 per cent market share, though TPG holds a big share of high-speed connections, mainly via its iiNet business.
There is similar concentration across other networks.
The big four account for 96 per cent of retail fixed-line voice services over Telstra’s legacy network.
Similarly, Telstra, Optus and Vodafone account for 90 per cent of retail mobile services across Australia.
“We are basically going to be the first continent where everybody is connected … no other country is planning that,” Mr Morrow told Business News.
“Lots of other countries are putting fibre in, but not to the extent we are.”
“The retailers, though, classically compete on price, so they naturally want to go with the cheapest product to get your attention,” he said.
“But they don’t often tell you that there is a choice on speed.
“So NBN Co feels it needs to educate consumers, that you have a choice of retailers and speeds.”
Mr Morrow said most consumers also failed to understand the variables that influenced download speeds, of which the NBN network was just one.
Others include the quality of WiFi in the house, the link to the retailer, the quality of their network, and the server used.
“Most people aren’t aware of all these links, and each one can affect their service,” Mr Morrow said.
“That’s the single most important aspect of education that we need for consumers.”
He said the current roll-out strategy, based on the use of multiple-access technologies, made a lot of sense.
“The government said, ‘Let’s get it as quick as possible to everybody and then we will upgrade’,” Mr Morrow said.
He said the use of HFC technology, which started in the Perth suburb of Ocean Reef in July, would improve the service available over Telstra’s legacy copper wires.
“What we will provide over HFC technology is very different to what customers can experience on the Telstra HFC network today, because of the massive upgrade of technology and redesign,” Mr Morrow said.
“The reason we are touching that technology is because it is already mostly built, so we can get to homes much faster than if we had to build a brand new fibre network.
“And the technology has evolved so well, we can give people on that service 1GB speeds.”
He said the changes would be particularly beneficial for business customers.
“The Telstra network was designed for downlink speeds, but the NBN change with this technology allows massive uplink speed as well, that that is very important for business,” Mr Morrow said.
“For business customers, this is probably the biggest thing that will excite them. Not only do they get faster (download) speeds, but their uplink materially improves.”
Mr Morrow said the download speeds currently available were more than enough to satisfy most people.
Of the 1.3 million users on NBN currently, 82 per cent are on 25MB or less.
“We all think we want more (speed) but the reality is people don’t use it,” he said.
Mr Morrow said studies showing download speeds below advertised rates were generally accurate but did not explain why these outcomes were achieved.
“Most of the studies are with existing technology, but even when people study the NBN (network), if you buy a low speed from the retailer, or the retailer has not configured their network properly, naturally the speed observed is going to be less than the capability of the technology,” he said.
The Australian Competition and Consumer Commission supports the introduction of a broadband monitoring program to help consumers.
ACCC chairman Rod Sims said earlier this month there was a distinct lack of clear information about broadband performance.
“The current scenario is limiting incentives for RSPs (retail service providers) to differentiate themselves and compete on performance,” Mr Sims told an industry congress.
“This is a lost opportunity, but it doesn’t have to be this way.
“At the moment, the information available to consumers is vague and unquantified and, as many consumers told us, they want to be able to compare apples with apples.”
Mr Sims had little sympathy for industry claims that consumers had unrealistic expectations.
“Let me be clear; I think that industry advertising has contributed to this problem.”
He said the ACCC wanted retailers to make accurate claims about how their networks performed, including during peak demand periods and where consumers were on connections that were genuine outliers.
Mr Sims said independent monitoring programs had worked well in other countries and would help consumers gain comparable information.
“A final, yet fundamental advantage of our proposed broadband monitoring program is to avoid disputes over whether poor performance is the fault of the NBN, or ISPs (internet service providers),” Mr Sims said.
“With so much being spent on the NBN, we need to know if it is delivering, or whether problems are due to ISPs purchasing insufficient capacity to service their customers.”
The debate over the NBN network comes at a time when the number of Australians using the internet appears to be reaching saturation levels.
The number of Australian subscribers hit 13.3 million in June, according to the latest survey by the Australian Bureau of Statistics.
That equates to growth of 22 per cent during the past five years.
Over the same period, the volume of downloaded data has continued to grow rapidly, expanding 10-fold.
The majority of this data continues to be downloaded on fixed-line broadband (92.4 per cent), compared with mobile handsets and wireless broadband.
The ACCC said the composition of investment appeared to be changing.
As well as the NBN network, it said there was slowing investment by retailers in digital subscriber line (DSL) services and increased take-up of Telstra’s wholesale asymmetrical digital subscriber line (ADSL) service.
The ACCC added that recent industry consolidation, led by TPG and Vocus, had changed the competitive dynamic, leaving the four big retailers to compete with a large number of smaller, second-tier retailers.
Against this backdrop, the ACCC has highlighted pricing of NBN products was an important issue.
“One issue that keeps getting raised from time to time is NBN pricing, particularly CVC charges,” Mr Sims said.
The connectivity virtual circuit charge relates to the capacity for an access seeker to aggregate the traffic of multiple end users within a service area at an NBN point of interconnection.
Mr Sims told the industry congress that concerns about CVC (connectivity virtual circuit) charges had been well made.
“The other side of the argument, not often mentioned, is that the ACCC is required to consider the opportunity for NBN Co to recover its efficient costs and earn a modest return on investment,” Mr Sims said.
That’s the issue that has spooked investors, particularly in TPG Telecom.
Industry analysts believe NBN Co will gradually lift access charges in order to obtain a commercial rate of return on its network.
It has been suggested that NBN Co will seek to hike the access charges paid by retailers such as TPG by about four times current levels.
Its ability to do so will be influenced by its market power, with suggestions NBN Co will become a monopoly provider.
The emergence of next generation 5G wireless technology suggests this could be a more significant alternative to the NBN network.
Telstra chief executive Andy Penn said it completed a successful real-world trial of 5G in Melbourne in partnership with Ericsson.
“The tests saw download speeds greater than 20Gbps and confirmed 5G will be a quantum leap in terms of speed, latency and overall capability and we intend to be at the forefront of this technology,” Mr Penn said.
In addition, the ACCC is continuing to support infrastructure-based competition.
“The structure of the telecommunications industry and the role of the NBN will have a major influence on the delivery of telecommunications services and the broader Australian economy for many years to come,” Mr Sims said.
“Where it is economically efficient, however, infrastructure-based competition is clearly preferable and will promote the long-term interests of end users.”
He said actual or even potential competition between networks could help drive price competition, product differentiation, innovation and timely investment.
“The ACCC considers that non-NBN network operators should not be constrained from deploying networks in competition with NBN Co, unless there are particular circumstances which overwhelmingly suggest it would not be in the long-term interests of end users.”