Idle minds in the telecom industry would normally be turning to matters Yuletide at this time of year. Thank goodness we have the Australian Competition and Consumer Commission to save us from such distractions, with its publication yesterday of a good 180 pages of its views on next generation networks in the guise of sending the G9/FANOC people back for holiday homework. And judging by the reactions so far we will have a great deal to talk about over coming weeks.

The first observation I would make is that the ACCC is reminding us that it is still there—technically and legally competent, immersed in all the issues and history, and basically firing a shot across a bow of Communications Minister Stephen Conroy’s proposed Expert Panel, which may well sideline it. The giveaway doesn’t come buried deep in the footnotes, it comes in the headline of the promotional press release, which could have read “ACCC draft decision rejects FANOC undertaking” but instead read “ACCC publishes views on next generation telecommunications networks." Says it all.

And indeed there is no shortage of views from the ACCC! One chapter even includes what reads like a business plan for a FTTN wholesale offering, listing 11 clauses of what constitutes an acceptable bitstream service covering physical, service description, quality of service, OSS and multicasting functionality dimensions.

The second observation I would make is that the G9 was yesterday being conspicuously cheerful in reaction to the rejection of its undertaking. On first appearances, this is odd. Here we have nine access seekers—mortal enemies in the market place but united by their desire to keep the flames of competition alive—who have come together kibbutz style to devise a competition regulator’s wet dream of all business models, and their undertaking is dismissed on the grounds it doesn’t protect the interests of access seekers? I mean come on! If they can’t get an undertaking up, who can?

Nevertheless, the G9 trotted out various quotes yesterday praising the bits of the ACCC’s draft decision that were supportive of their undertaking and dramatically underplaying the quite devastating and undeniable criticisms. For good reason. The rejection allows the G9 to reboot the undertaking process and bide for time. And given the G9 proposal is effectively a defensive reaction against a Telstra initiative, delay is a powerful resource. Also, by being kind to the regulator, they gain the moral high ground!

The third observation I would make is that the ACCC has punched holes right through the FANOC proposal, despite dismissing much of the criticisms of its two critics, Telstra and Pipe Networks. It says, for example, that FANOC has too much discretion in setting both prices and terms & conditions and that the so-called broadband access manager—effectively the independent level of the governance structure—would not be able to exercise sufficient oversight over key decisions.

The ACCC is also skeptical of other aspects of the proposal—for example, the proposal to transition the entire PSTN onto soft-switch enabled IP voice and the lack of detail on how congestion will be managed, a key issue given its pricing is based on contended data speed functionality.

It also picks up a point first made by this columnist in June. Many of the incentives for the network manager are based around aligning costs and prices with the demand forecasts provided by the network’s owners. The ACCC says it has an issue with the “accuracy and rigour of the underlying data which has informed these initial price estimates.” Or as I would put it, “garbage in, garbage out.” Many of the G9 members have anemic sales performances of late but you would be hard pressed to find much accurate visibility in their financial guidance to investors. This makes even the initial G9 pricing proposals a tad difficult to swallow in terms of their credibility.

KILLER: However there is one big killer in the ACCC response, which plays into the G9’s Achilles Heel—its reliance on effectively co-opting and cutting Telstra-owned copper into its network.

The FANOC proposal suggests that since it only intends to use the last half-mile of copper it shouldn’t be forced to pay the full $17.70 per month ULL price but only a proportion—perhaps as low as $5. This is ridiculous, of course, and shows that whoever dreams up the FANOC proposals needs to acquaint themselves with what private property means and its relationship to their existential role in a capitalist society! It’s a bit like breaking a vase and expecting to only pay the shop owner for the piece of ceramic you want to take home!

The ACCC seems to possess a somewhat more, but not entirely, reasonable view of what constitutes property rights and says it believes the current network component of the ULL charge (around $12-14) would be the appropriate “upper bound” measure for estimating what G9 should pay Telstra.

This is basically the current ULL price minus ULL system specific charges. The ACCC also reserves its right to change its view on this. The uncertainty over the Telstra access price also obviously casts doubts on the credibility of FANOC’s own network demand estimates and access offer—given that variability in the final end price will stimulate or depress demand for its services.

So where does leave the entire FTTN policy process? I have no special access into the mind of Stephen Conroy and, besides, he hasn’t even hired his advisers yet. But I would suggest he will look at all of this and wonder whether the current regulatory process part of the problem or part of the solution?

His choice of members on his expert panel is looking like a more important decision by the day.

by Grahame Lynch 

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