Turnbull says big telcos should subsidise bush comms

Command and control in a free telco market

It looks like the federal government is getting its feet in a tangle, trying to reconcile the public good of the National Broadband Network with free-market doctrine.

Communications minister Malcolm Turnbull has floated his ideas of how to create a transparent mechanism to subsidise rural telecommunications, and it seems to involve imposing some form of price control on companies wanting to build NBN-competing infrastructure (the best-known example being TPG, which wants to build its own FTTB network but is currently stymied by the requirement to offer its infrastructure to competitors on a wholesale basis).

Communications minister Malcolm Turnbull has outlined his thinking to the The Australian Financial Review. He told the outlet that rural infrastructure should be funded via a “transparent” levy on wholesale services.

Turnbull has been wrangling with the question of rural subsidies ever since October 2014, when he ruled out turning the subsidy into a federal budget item.

For NBN Co, his solution is simple: the network builder will be able to maintain its single, national price book for wholesale services. In that model, the only change would be that for cheaper metropolitan services that help pay for things like remote satellite services, the level of subsidy is identified as part of the bill.

“In the interests of transparency, what we're proposing is that there should be a portion of the NBN wholesale charge which is clearly identified as the subsidy amount,” he told the AFR.

However, someone like TPG, which is following an explicitly cherry-picking model in rolling fibre to the basements of multi-dwelling units that are already close to its network, has no internal cross-subsidy to account for.

To get around that, Turnbull is proposing a model that sounds to Vulture South suspiciously like a form of price control.

“And then an equivalent amount be levied on people who provide competing services,” he added, because otherwise “someone could cherry-pick the most affluent areas in the city and not bear any of the costs”.

In other words, having worked out that (for example) X per cent of NBN Co's metro service charges are used to fund rural satellite and wireless services, that would be added (by some mechanism) to the wholesale charges of someone like TPG.

Turnbull didn't mention what mechanisms might be used, both to work out NBN Co's quantum of subsidy, nor how competitors might be directed to apply that to their wholesale services.

For example, calculating NBN Co's internal cross subsidy is bound to involve an independent body like the ACCC.

As anybody familiar with the ACCC's endless inquiries into Telstra wholesale services will know, every assessment of the “true” cost of any service will be challenged both by Telstra (which will claim the cost is higher than the ACCC's model) and the rest of the industry (who can prove that the cost is lower).

NBN Co would have a similar incentive to model the highest possible estimate for the cost of its rural cross-subsidy: to strangle competitive networks.

At least the inevitable year-long wrangle would give the government time to create the legislative and/or regulatory instruments letting it instruct competitors to charge the levy.

That's if any competitors remain. Would a company like TPG feel it was worth it, first to comply with the wholesaling license conditions (including a corporate restructure), then to spend months or years lawyering its way through an ACCC inquiry?

TPG's already pulled its fibre-to-the-basement product because it couldn't or wouldn't jump through the ACCC's wholesaling hoop. So Vulture South thinks it won't be keen to go agian.

There was one more snippet in Turnbull's conversation with the AFR that El Reg thinks deserves wider currency: a softening-up of the electorate that even under the new model, his timetables might slip.

Turnbull called the NBN a "very high-risk project' even under the multi-technology model, and while the company has assured him it will reach its mid-year million-connection target, "I want to emphasise that this is a very complex physical project". ®

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