Doubt raised on broadband plan if big telcos left out in the cold

Doubt has been raised about the viability of the Government's broadband plan without Telecom playing a meaningful role.

Telecommunications market analyst Rosalie Nelson said she had serious concerns about how the Government had structured the process that aims to build a high-speed broadband network which is open to competition and with minimal regulatory intervention.

"It feels to me that the process that they've set up now creates some very significant commercial barriers to the existing telecommunication players that have sunk fibre actually participating at all," Nelson said.

On Wednesday, Communications and IT Minister Steven Joyce reaffirmed his plan to allow only broadband network builders with no retail business to benefit from $1.5 billion in taxpayer cash.

Those telcos with retail arms which chose to tip assets and cash into a partnership with the Government cede control of the new business to the other shareholders.

"There isn't any promise or commitment to roll back existing legislation and, yes, there is the sweetener of $1.5 billion, but it's really hard to see if that is going to be enough," said Nelson.

The Telecommunications Industry Group, which includes the likes of Telecom, Vodafone and Vector, said the total cost was likely to top $6 billion.

Nelson said there was a real risk the main network operators decline to participate - TelstraClear has already indicated that was its intention - in favour of expanding their existing fibre networks and taking fibre to the premises where it made commercial sense.

"That will really marginalise the business case for any local fibre company because, one, they'll have to overbuild and, number two, it removes the key anchor tenants to the dark fibre network."

Nelson says several options exist for rolling out an ultra-fast broadband network, none of which are ideal, but a national fibre company is possibly the best solution.

"It's hard to see any model by which Chorus is not a key part at a pragmatic level. It has the ducts, it's got the real estate, it's got the trenches, it's got the existing national fibre reach and it would allow there to be a migration from the existing copper networks to fibre, which would support the business case, and that's not even being talked about," said Nelson.

In Australia, telco giant Telstra has been given an ultimatum to voluntarily undergo a structural separation, or face a forced functional separation under reforms announced earlier in the week by the federal Government.

But the legislation includes an option for Telstra to pursue a gradual separation, rather than a definitive split in two, if it progressively migrates its fixed-line customers on to the taxpayer-funded national broadband network as it gets rolled out, then sells or abandons its current fixed-line network.

Goldman Sachs JBWere analyst Christian Guerra said other alternatives included Telstra selling its network assets to the National Broadband Network Company, a move that would reduce the cost of the national broadband network and accelerate its completion.

Telstra chief executive David Thodey is apparently in regular contact with Telecom chief executive Paul Reynolds over how to deal with the issue of separation.

WHAT HAPPENS NEXT

Mid October: Government issues invitations to tender.
Late October: The Crown Fibre Company established with a five-to-seven-member board appointed.
Late December: Initial proposals due from network building partners.
Mid 2010: Initial decisions on winning bids by Crown Fibre Company.