Tuesday, March 03, 2009

Tales from the Crypt

I just spent the morning at the NBN Senate Select Committee hearing in Sydney. As one Senator put it to me in a break they had a feeling of deja vu.

In fact it felt more like the script of a horror movie, something starring zombies or other varieties of the undead, because this is a conversation where no point is ever won, and no idea is ever prohibited from resurfacing. Before we discuss today, let's just talk tactics. The coalition brought on this enquiry to try to embarass the Govt during the selection process. But it isn't making much progress. If the Government does resort to introducing legislation (see below) we have to wonder whether the coalition can credibly require yet another committee.

There are a few points that keep being raised that need to be buried. The first is whether the Government should have defioned the regulatory rules before calling the tender. It is an extraordinary call coming from the coalition Senators (though I note it was a National who sometimes are coalition in name only who pushed the issue). This was the the second wing of the coalition's policy in Government - they announced the Broadband Connect program and they announced a "tender" for the building of the NBN where proponents were to specify the regulatory requirements for the proponent to make its commercial investment. It was their way of choosing between Telstra and the G9. Hopefully the Senators will have the brains not to pursue this, after all they can ask the Shadow Finance Minister (Helen Coonan), the member for Mayo (Jamie Briggs) and their Leader's Deputy Chief of Staff (Peta Credlin) to remind them of tht half of their policy.

They also like to go on about the cancellation of the OPEL contract, as does Minchin on the exclusion of Telstra from the NBN bid on a "technicality". At one level this is simply about law, should people be funded by Government if they don't meet their contractual (or tender) requirements. To be fair to Senator Minchin he does claim that the Government has provided insufficient detail in public about the cancellation, and that there has been no proof. In their latest submission Optus goes to some length to explain how the disagreement between them and the Government came about, and also to be fair they did try to deflect questions about it at the committee.

However, they did briefly slip indicate the cancellation was "subject to legal proceedings" before correcting themselves that they were still merely assessing whether it should be. It is hard to escape the feeling that Optus' decision on whether to commence proceedings or not will depend on the outcome of the NBN tender.

It is also to be hoped that the Senators will think to ask these questions of the Department, as I believe there is every chance the Departmentknew OPEL could not meet the conditions precedent when the contract was awarded.

There is still a lot of nonsense sprouted about the potentrial for "over-build" and what happens to Telstra's network if someone other than Telstra wins. As long as we re talking about a hybrid fibre-twisted copper FttN solution, the only efficient way to do this is to cut all the copper over at a "pillar" (or node) at once. There is no part of Telstra's network that is still then useful. Senator McDonald suggested Telstra would be "rightly aggrieved" at this acquisition of property. Dr Kelso suggested that Telstra could start legal actions lasting 5 to 10 years.

Thankfully Optus reminded the committee of Telstra's home goal on the access regime, but he didn't go far enough. There were two parts to that decision. The first was that all Telstra's assets had at all times been covered by an access regime and hence they never had an unencumbered property right. Just how far this would extend to mandating access to all the coppr is not clear.

But the second part was that the clause in the Act to preserve it after a constitutional challenge was found to stand, that is, if an action by the Commonwealth amounts to acquisition of property the law still stands and the Commonwealth will pay compensation. The beauty of this is that while Telstra might be able to bring legal actions, they would not be able to secure injunctions to stop deployment.

How much compensation would depend on a definition of value of the asset. Telecommunications companies only operate their networks by grace of the legislative permission to do so, and subject to legislative and licence conditions. These include significant benefits including exemptions from State planning laws. The Government can do much to impare Telstra's assets before acquisition. Specifically they could remove the planning exemption for anything other than structurally separated assets. They could change the USO funding scheme to apply only to structurally separated assets. They could increase the regulatory reporting requirements under operational separation.

The endpoint will be interesting. Senator Minchin asked Optus how long it would take to start building given the need to negotiate and pass legislation. Optus missed the opportunity to reply "that depends on whether you try to delay high speed broadband in the Senate".

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