[AusNOG] NBN Legislation

[Bevan Slattery]

Dmitri,

You aren't seeing two (2) core concerns.  You are seeing two (2) of a massive number of core concerns.  I am happy to provide a more detailed response later tonight.  I am going to enjoy a day with the family in the meantime :)

While I am doing that can you provide me any evidence that the proposed pricing levels would be *higher* than the market rate?  Perhaps a guarantee?

[b]

From: Dmitri Kalintsev [mailto:dek735 at gmail.com]
Sent: Sunday, 28 November 2010 8:06 AM
To: Bevan Slattery
Cc: ausnog at ausnog.net
Subject: Re: [AusNOG] NBN Legislation

Bevan,

So far, I am seeing two *core concerns*:

1) Carriers are being forced to create a capability to provide Ethernet services with the tech specs "to be defined by ACMA"; and

2) Offer these services to any wholesale customer at "yet-to-be-advised" price points.

Your example appears to have assumed that the (2) *will* establish unsustainable level of pricing, which will prevent the network extension from happening.

Is there any evidence which would support the view that the proposed pricing levels indeed will be that much lower than the current market?

-- Dmitri

On Sat, Nov 27, 2010 at 9:29 PM, Bevan Slattery <Bevan.Slattery at nextdc.com<mailto:Bevan.Slattery at nextdc.com>> wrote:

That is an oversimplification. This insidious piece of legislation is all about removing carriers ability to make independent investment decisions to deploy capital efficiently.  It is about economically stranding the fibre assets.  What the Government has effectively done is choke off all the capital and investment in competitive infrastructure under the guise of 'harmonising standards'.   Infrastructure based competitive carriers are no longer able to consider each network extension, or individual product on its own independent situation.  Every day carriers make decisions on where to invest based upon the opportunities in front of them and in working with their customers.

So an example would be Internode wants to connect to their PoP in Brisbane to a corporate client 2kms off PIPE fibre with a 1GbE metroE service (an extension cost of $60k and a monthly increase in duct rental of $1,200).  Now before PIPE can sell Internode any services PIPE would need to create a non-discriminatory access regime between PIPE and Internode with the fact that this regime (Network FAA if you will) needs to apply to *all* future customers.  Now if the Network FAA says that PIPE will sell their 1GbE metroE service for $1,000 per month, PIPE would be unable extend its network to offer Internode this service because frankly, it would lose money.

Regrettably unlike NBN Co. companies like PIPE, Nextgen, Optus, AAPT etc. do not have unlimited funds and more importantly understand they need to provide a greater return on their investment than their WACC.  NBN Co. has already demonstrated that on an optimistic basis they may be able to produce a 6% return on invested capital some 5% LESS than their WACC over 30 YEARS.  In fact NBN Co. is estimating it's WACC is 25% per year for the first 3 years.  So unlike all other carriers out there, NBN Co. does not have company Directors who will be personally liable to shareholders for their decisions, NBN Co. and the Government is prepared to wipe away billions of dollars in investment dollars (the delta between its RoE and the WACC).
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