HG Alert: National Broadband Network Draft Bill Released - 10 Mar 2010

The Department of Broadband, Communications and the Digital Economy recently released the latest draft Bill relevant to the implementation of the National Broadband Network (NBN).

As expected, the draft Bill states that the NBN Company, who will own and operate the NBN, is to be wholesale only and open access to maximise competition. Unexpectedly, the Bill also grants broad powers to the Communications Minister, currently Stephen Conroy, to allow the NBN Company to supply certain services to end users, potentially circumventing the “wholesale only” requirement. The explanatory notes for the draft Bill states that such end-users could include government departments.

Telstra, which derives much of its business from supplying services to government departments, has been particularly critical of these broad powers, with Telstra chairperson Catherine Livingstone and Chief Executive David Thodey stating that:

Such an outcome would run counter to the core purpose of the NBN and the Government’s primary policy objective of restructuring the industry to have separate providers for retail and wholesale fixed network services”.

Telstra is, of course, referring to the Government’s policy to de-centralise the telecommunications industry in Australia. As it currently stands, Telstra remains one of the most integrated telecommunication companies in the world, as it owns the fixed line copper network in Australia that connects every premise and business (including Telstra’s competitors), and provides both wholesale and retail services.

Telstra’s combined wholesale and retail structure has, for years, created issues between Telstra and its competitors, as they are forced to negotiate wholesale access to Telstra’s network. The Chamber of Commerce and Industry has previously stated that:

“A conflict of interest arises when a monopoly carrier is required by law to provide network access to its retail competitors, and is also required by law to maximise the return to its shareholders”.

The NBN was proposed partly to change the telecommunications landscape by providing open access and wholesale only services, eliminating the conflict of interest that currently exists.

As Telstra provides both wholesale and retail services, it can either choose to remain a provider of wholesale services and compete with the NBN Company, or co-operate with the NBN by giving up the wholesale arm of its business. Although Telstra is already functionally separated, divesting itself of its wholesale services would involve Telstra structurally separating its business and selling the wholesale arm to the NBN Company.

Telstra and the Government are currently at loggerheads over the value of Telstra’s wholesale business. No doubt, the broad powers granted to the Communications Minister to permit the NBN Company to compete on a retail level will be used as a tool in negotiations to persuade Telstra to co-operate with the NBN, instead of competing with it. The draft Bill has seen Telstra’s shares plummet to historic lows.

The draft Bill also provides that the Government must retain majority ownership of the NBN Company until the Communications Minister declares that the NBN should be treated as built and operational.

For more information about the National Broadband Network, please contact HopgoodGanim’s Intellectual Property and Technology practice.