Unbundling across the ditch

Australian firms are poised to get plenty of choice in high-speed internet access, says RAMON del CARMEN*.


The decision to unbundle the local loop in Australia will bring broadband access to more businesses at lower prices than current high-speed access offerings like ISDN (integrated services digital network).

Several companies now offer alternative high-speed broadband access via DSL (digital subscriber line) technology, which allows business customers to combine their data, video, internet and voice needs more efficiently and cheaply.

Instead of dragging the chain as might be expected, incumbent telco Telstra has embraced local loop unbundling, claiming that its copper network, once considered a relic, has been reborn as a broadband access network delivering value to customers and shareholders.

XYZed is the first competitor to take advantage of the unbundling. It started building a network in April and launched a commercial service with a presence in 50 exchanges in September.

Another 50 exchanges are planned, giving XYZed the ability to serve up to 60 per cent of Australian businesses.

The company, a subsidiary of Cable & Wireless Optus, will compete directly with Telstra in the $1.5 billion market for high-speed access.

The Australian Competition and Consumer Commission decided in August last year that Telstra should unbundle its local network.

The industry worked together through the Australian Communications Industry Forum to negotiate codes of practice specifying the detailed technical and operational requirements for local loop unbundling.

Telstra negotiated bilateral commercial arrangements with potential competitors to provide access to key exchanges, and designed, deployed and tested the extensive systems required to support unbundling - all within 14 months of the commission's decision.

It would be disingenuous to say this was all easy. Telecommunications networks are complex beasts and any access and interconnection arrangements require agreement on a wide range of commercial, technical and operational issues.

The position was no different when competition was introduced 10 years ago and new network operators had to establish interconnection with incumbents for voice calls.

Incumbents and new entrants have the resources and experience to work through these issues, provided they have the right incentives to reach agreement.

As always, the devil is in the detail and there are ample opportunities for an incumbent determined to resist regulatory change to frustrate and delay the whole process.

But it is a mistake to regard incumbents as having a monolithically negative attitude to unbundling.

Within any incumbent's organisation, there typically will be conflicting retail and wholesale incentives.

The retail business will naturally want to protect its dominant market position, pushing up prices and restricting the range of wholesale products to keep new entrants from making inroads into the new service area.

On the other hand, some within an incumbent, particularly at the network level, will welcome new wholesale business from entrants and are more likely to be flexible.

Selling unbundled local loops at reasonable prices means that the incumbent's existing substantial investment in local network is not devalued by operators building around that network.

Regulation can be a catalyst for the development of a true wholesale philosophy within an incumbent by unlocking the wholesale incentives from the retail imperatives.

Price regulation directs an incumbent down this road and commercial forces rapidly gather momentum within the company.

In many overseas markets, incumbents are now voluntarily separating out their wholesale businesses, such as British Telecom. It proposes to publicly offer shares in its network business on the basis that it is a profitable, going concern (BT is also required to provide local loop unbundling).

This sort of attitude and behavioural shift is not an overnight phenomenon. Over the last year there has been a huge shift in Telstra's attitude, from its original position of outright hostility to a recognition of unbundling's full commercial possibilities.

There are still disagreements, especially over price, but these are being addressed within the regulatory regime and while not holding up the launch of competitive offerings, arbitration over specific business issues does slow the timetable.

The New Zealand concept of time limits for arbitration would be a welcome addition to the Australian regulatory landscape.

Of interest for Anzac businesses is the potential for competitive distortions that the presence of local loop unbundling in Australia and its absence in New Zealand could cause.

Large and medium businesses are increasingly seeking single transtasman communications solutions for their New Zealand and Australian offices but only Telecom-AAPT will be able to offer ubiquitous data connection in both countries.

AAPT can achieve data connectivity almost anywhere in Australia using Telstra's network through data tails and local loop unbundling.

Telstra, by contrast has an ubiquitous network in Australia, but has no reciprocal access here.

More importantly, New Zealand might miss out on the "bandwidth boom" that competitive digital services offered over a local loop have sparked in the US, Europe and in its nearest neighbour, leaving Kiwi businesses on the wrong side of the digital divide.

* Ramon del Carmen is the chief financial officer of XYZed, a wholly owned subsidiary of Cable & Wireless Optus and Australia's first wholesale operator using local loop unbundling. The views expressed in this article are personal and not necessarily those of XYZed.