TPG spooks government into AU$7 monthly broadband tax to replace NBN cross-subsidy

From July 1 2017, users of fixed-line broadband capable of 25Mbps or more are set to be hit with a AU$7 monthly charge, to be contributed to a Regional Broadband Scheme, under draft legislation released by the government on Monday.

Citing a net cost of AU$9.8 billion to NBN over the next 30 years due to running non-profitable fixed wireless and satellite services, while still needing to compete in some metropolitan areas, the Department of Communications said it would replace NBN's current internal cross-subsidy with an industry-wide charge on all fixed-line users.

The main competitor to NBN is TPG's fibre-to-the-basement alternative, which initially targeted 500,000 units in Sydney, Melbourne, Brisbane, Adelaide, and Perth, and was allowed to operate thanks to a loophole in the NBN legislation. TPG said last week its on-net products, such as FttB, are more profitable than its ADSL business.

"The [existing] provisions have not succeeded, as network providers have expanded into population dense areas with existing infrastructure beyond what was originally conceived through the grandfathering provisions," the Department of Communications said on Monday.

The department said NBN's net cost for the non-commercial services was in the range of AU$105-110 a month, and consequently does not allow NBN to complete with offerings from TPG.

"As a retail service provider over NBN's network, TPG offers a 100 megabit per second service for approximately AU$100 per month. TPG's wholly owned subsidiary Wondercom offers an identical service over TPG's network infrastructure for approximately AU$70 per month," the department said.

"As currently structured, NBN is at a competitive disadvantage to comparable providers that do not face similar costs of providing fixed wireless and satellite broadband services."

Set to start next financial year, the initial AU$7.10 per month charge will raise AU$370 million from NBN, and AU$40 million from other broadband providers.

"The proposed funding arrangement does not represent a new cost for the industry -- or consumers -- as a whole, although the distribution of the cost would now extend to fixed line networks competing with the NBN," the department said.

During its consultations, the department said NBN suggested that mobile broadband users to contribute to the scheme, while TPG said it may offer services via fixed wireless to avoid the charge.

By 2022, the department estimates there could be 380,000 non NBN services, paying a total of AU$44 million into the scheme annually.

Although NBN is set to be the only recipient of the charge, the minister for communications will be able to declare other recipients if needed.

The AU$7-a-month levy will not apply to fixed wireless, satellite, exchange-based DSL, inactive broadband services, or to lines set to transfer to NBN under agreements signed with Telstra and Optus.

Over the life of the NBN, the company responsible for rolling out the National Broadband Network has come under repeated fire for its connectivity virtual circuit (CVC) pricing structure.

"The cost of international capacity, I think, is going to remain cheaper than the CVC charges. So international capacity for the next five years or 10 years is going to be cheaper than the CVC charges ... there is no way it should be cheaper to get connected from next door to the POI next door than it should be to go trans-continental. That's just crazy," Superloop CEO Bevan Slattery said in April.

For its part, NBN has forecast the CVC price would drop to AU$10 thanks to increased usage of data across the network.

Under the draft legislation released, the government is also set to require NBN to become a Statutory Infrastructure Provider (SIP), which will require it to supply wholesale services upon request from retail service providers.

"During the NBN rollout, NBN will have SIP obligations in all areas where it is supplying carriage services. After the NBN rollout is completed, NBN will be the default SIP for all of Australia," the department said. "Other carriers can also become a SIP where appropriate, for example where a carrier is the sole provider of infrastructure in a new development. "

The explanatory notes for the draft legislation state that if a SIP cannot connect a premises with a fixed line, it must connect the premises via fixed wireless or satellite.

Under the proposed laws, all new fixed-line networks, or parts of pre-existing fixed-line networks technically capable of speeds greater than 25Mbps, must be offered by structurally separated telcos, unless the Australian Competition and Consumer Commission (ACCC) has authorised functional separation. The ACCC will also be able to exempt carriers from the separation provisions if they have customer numbers below a set threshold, such as 2,000 residential customers.

"The 1 kilometre exemption will no longer apply on or after 1 July 2017," the department said. "This means that all extensions of pre-existing networks on or after that date must be used to supply services on a structurally separated basis as the default."

Telcos supplying services to small businesses would not have to apply the separation provisions to those particular lines.

Consultation on the draft legislation is open until February 3, 2017.