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2014-12-12

NBN

Government responds to Vertigan inquiry recommendations

The federal government has released its response to the Vertigan inquiry which looked at the regulatory arrangements for the NBN.

The government will abandon the monopoly model for the NBN – already under pressure from TPG – and with it the uniform wholesale pricing that monopoly allows.

Carriers will be allowed to compete with NBN Co where and when they wish to do so, but they will have to accept functional separation (i.e. operating their wholesale business under a separate company structure) and regulated wholesale prices.

NBN Co itself will also have its prices regulated (by price caps) but will not have to offer the same price for urban and rural wholesale services.

It will be able to lower its prices to meet competition where it appears –typically in high density metropolitan markets such as those already being targeted by TPG.

The effect of this will be to reduce NBN Co’s ability to cross-subsidise rural and regional areas. The government’s answer to this is to require a contribution to those subsidies from other fixed broadband providers.

This is basically the model which applied to the delivery of the Universal Service Obligation (USO) after the end of the Telecom monopoly. E-bulletin readers with long memories will know that it was the source of endless arguments between Telstra (the USO provider) and the rest of the industry about the actual costs of the USO. Get set for a re-run of these arguments as the NBN comes into fuller operation.

The government will also require the different elements of NBN CO – the wireline, fixed wireless and satellite networks – to keep separate accounts.

Vertigan recommended that the government consider spinning off these operations into separate companies in the interests of competition. The government rejected this move in the short term, but is clearly laying the basis for it further down the track – either prior to or at the time of privatisation.

The new regulatory regime is scheduled to come into effect fully at the beginning of 2017.

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