Legal and Regulatory Advisors Auckland | Sydney

Comparison of Government-led fibre projects in Singapore, Australia and New Zealand Presented at Alternatives for infrastructure development and broadband access Brasília, 16 November 2009 Malcolm Webb Partner Legal and Regulatory Advisors Auckland | Sydney Legal and Regulatory Advisors Auckland | Sydney

What we will cover today What the Governments are trying to achieve with their public sector investment The public policy rationale for Government investment in broadband A brief introduction to fibre terminology How Governments are proposing to spend billions of taxpayer dollars The importance of separation: structural and behavioural aspects Forms of wholesale access to fibre How to get the incumbent to “play ball” Setting the access price How Governments are responding to demand risk How Governments have approached the rural areas Legal and Regulatory Advisors

What the Governments are trying to achieve with their investment
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Objectives Singapore: An all new FTTP network to all physical addresses by 2013 Australia: An FTTP network to 90% of premises within 8 years, supplemented by wireless and satellite New Zealand: An FTTP network to 75% of the population within 10 years (schools, hospitals etc within 6 years) Legal and Regulatory Advisors

The public policy rationale for Government investment in broadband

New Zealand “Private sector companies have decided, on behalf of their shareholders and as a commercial decision, not to invest in a nationwide network of fibre-to-the-home at this point in time. The government understands this, and so wishes to assist and work with the private sector in improving the business case for ultra-fast broadband.” “The government is also getting involved in order to encourage the provision of widespread open access dark fibre services, which will facilitate the best possible competition outcomes in emerging markets and encourage innovation in wholesale and retail services.” (Minister Joyce, October 2009) Legal and Regulatory Advisors

Australia “High speed broadband is increasingly essential to the way Australians communicate, and do business. It will help drive Australia's productivity, improve education and health service delivery and connect our big cities and regional centres. The Government will invest in this major nation-building infrastructure to stimulate jobs in the short-term and pay a dividend to the Australian people through enhanced productivity and innovation in the long-term.” (Senator Conroy, April 2009) “The investment is expected to generate additional economic activity of over $37 billion (R$58 billion) over the life of the project.” (Senator Conroy, April 2009) Legal and Regulatory Advisors

Singapore “For Singapore to remain competitive in the globalised economy, we need careful and timely investments in our key economic infrastructures including infocomm infrastructure.” “To ensure that Singapore’s infocomm infrastructure is ready for future needs, we must act now. “ (Minister Dr Lee Boon Yang, December 2007) Legal and Regulatory Advisors

A brief introduction to fibre terminology

FTTP (Fibre To The Premises) A fibre optic network that extends from an exchange or central office all the way to an end-user’s premises – capable of providing broadband download speeds of 100Mbps to 1Gbps and beyond Legal and Regulatory Advisors

PON vs. Point to Point architecture: PON PON is the most cost effective architecture, using aggregation fibre from the central office to an intermediate point (the splitter), which then transmits the signal onto separate strands for individual end-user premises Street Cabinet or locally (say1:32) Central Office RG ONT OLT EAS BNG Splitter Applications & Content Legal and Regulatory Advisors

PON vs. Point to Point architecture: Point to Point Point to Point involves a dedicated fibre strand going all the way from the central office to the end-user premises Central Office RG ONT MUX EAS BNG Applications & Content Legal and Regulatory Advisors

How Governments are proposing to spend billions of taxpayer dollars

Singapore Provision of grants, through a contestable approach Grants of S$750m (R$925m) to the company that will roll-out the dark fibre (OpenNet) and S$250m (R$308m) to the company that will provide the active infrastructure (Nucleus Connect), with payments linked to roll-out milestones for both Legal and Regulatory Advisors

Singapore, cont. Legal and Regulatory Advisors

Australia Investment in a Government-owned broadband company Investment of up to A$43 billion (R$68 billion) in a national broadband network company, established by the Government (NBNCo), that will provide the dark fibre and active infrastructure NB, the A$43 billion includes equity invested by the Government (and any private investors), plus debt Legal and Regulatory Advisors

New Zealand A contestable, regional-based, approach Investment of up to NZ$1.5 billion (R$1.87 billion) in a Government holding company (CFH) who will invest alongside private sector partners in local companies, which will provide the dark fibre Legal and Regulatory Advisors

The importance of separation:structural aspects

Singapore OpenNet cannot be controlled by an existing operator – SingTel has a 30% stake (other OpenNet investors have 30% or less) Nucleus Connect could be owned by an existing operator, but had to be a separate legal entity – Nucleus Connect is a wholly-owned subsidiary of StarHub As part of the OpenNet bid, SingTel will transfer ducts, manholes, exchanges etc to be used by OpenNet to a separate legal entity, AssetCo, by April 2011 AssetCo will be owned by a trust with SingTel initially being the sole beneficiary Legal and Regulatory Advisors

Australia First 5 years (following network completion): NBNCo will be wholly owned by Government, but a minority stake may be held by others After 5 years: Government intends to privatise NBNCo, however no operator will be able to control NBNCo Legal and Regulatory Advisors

New Zealand Initially, CFH will own all voting shares, with local Partners being granted voting shares in line with connection of premises For the first 10 years, board appointments will be 3 for CFH, 3 for Partner, and 1 independent chairman After 10 years, board appointments will reflect shareholdings, except where Partner is a retail operator (in which case the 3:3:1 split will remain) Legal and Regulatory Advisors

The importance of separation:behavioural aspects

Singapore OpenNet Must provide dark fibre wholesale access to Nucleus Connect (and other opcos) on a non-discrimination basis Nucleus Connect Must provide active wholesale access to Retail Service Providers (RSPs) Equivalence of Inputs for specified services – same product/price/processes/information for all RSPs Policies that are independent from StarHub, separate premises and an independent monitoring board Legal and Regulatory Advisors

Australia NBNCo will be a wholesale-only business, operating on an “open-access” and “equivalence” basis (still to be defined) Legal and Regulatory Advisors

New Zealand LFCs will be wholesale-only businesses Must provide Layer 1 services on a non-discrimination basis But, if permitted to provide Layer 2 services by CFH, LFCs must provide: Layer 1 services on an Equivalence of Inputs basis Layer 2 services on a non-discrimination basis Legal and Regulatory Advisors

Forms of wholesale access to fibre

Layer 1 services Access to dark fibre at Points of Interconnection (POI) within the network and at end-user premises A requirement to provide in Singapore (OpenNet) and New Zealand (Local Fibre Companies); not a requirement in Australia Acquirers of Layer 1 services attach the dark fibre to Optical Line Terminals (OLTs) or Multiplexors (MUX) at the POI within the network and to Optical Network Terminals (ONTs) at the end-user premises Competition issues can arise with Layer 1 access, as it has the potential to entrench the market advantage of the player with the greatest retail share Legal and Regulatory Advisors

Layer 1 services, cont. Layer 1 RG ONT OLT EAS BNG Applications & Content Legal and Regulatory Advisors

Layer 2 services An active “bitstream” wholesale service A requirement to provide in Singapore (Nucleus Connect), will be provided in Australia (NBNCo) and may be provided in New Zealand only with CFH consent (Local Fibre Companies) Acquirers of Layer 2 services attach Broadband Network Gateways (BNG) to the Ethernet Aggregation Switch (EAS) within the network and attach Residential or Business Gateways (RG/BG) to ONTs at end-user premises – customer premises equipment (CPE) then attach to the RG/BG The Layer 2 service should have a range of security, QoS and multi-cast characteristics, able to be determined by the Layer 2 acquirer Most serious retailers would acquire Layer 2 services Legal and Regulatory Advisors

Layer 2 services, cont. Layer 2 RG ONT OLT EAS BNG Applications & Content Legal and Regulatory Advisors

Layer 3 services More of a “plain vanilla” active wholesale service A requirement to provide in Singapore (Nucleus Connect), will not be provided by LFCs in New Zealand, not expected to be provided by NBNCo in Australia As this would involve no control over QoS, likely to hold little attraction for serious retailers as compared to Layer 2 Legal and Regulatory Advisors

Potential retail services, using Layer 2/3 Legal and Regulatory Advisors

NetCo OpenNet OpCo Nucleus Connect Service Providers Service Providers Retail Service Providers OSI layer New Zealand Australia Singapore Wholesale P A S S I V E LFC NBN Co L1 Dark fibre Wholesale A C T I V E L2 Bitstream L3 Bitstream Services R E T A I L L4 L5 L6 L7 Legal and Regulatory Advisors

How to get the incumbent to “play ball”

New Zealand Pressure through competitive tension A competitive tender is held in each local area, to be selected as Partner – the incumbent is expected to participate in each tender – most likely competitive bids to come from local electricity lines companies As part of the tender process, negotiations are held with each potential Partner for “vending in” useful fibre assets to LFCs – otherwise Partners are required to construct the network for a fixed price bid during the tender Legal and Regulatory Advisors

Australia A complex, high-stakes negotiation Legislation introduced which requires Telstra to functionally separate at a minimum, but restriction on acquiring 4G spectrum and mandated disposal of some assets if only functional separation – but these restrictions may be waived if Telstra structurally separates Transfer of Telstra’s fibre infrastructure to NBNCo would satisfy structural separation “We’re offering a choice to Telstra. A choice about whether they want to stay in the copper past and stay in the existing spectrum, or move to a fibre future with a release of spectrum that’s coming through the digital handover in the next few years.” (Senator Conroy, November 2009) Legal and Regulatory Advisors

Singapore Nothing much, but SingTel has co-operated anyway SingTel retains a valuable revenue stream through its interest in AssetCo (S$50-60m per annum (R$62-75m) rental paid by OpenNet for maintenance and use of AssetCo’s underlying ducts etc) Legal and Regulatory Advisors

Setting the access price

Singapore Access prices for first 3-5 years determined through the competitive bid process OpenNet: S$15 (R$18) per month for residential premises; S$50 (R$62) per month for non-residential premises Subsequently, every 3 years, IDA reviews OpenNet’s prices, comparing them to “target prices” Legal and Regulatory Advisors

Singapore, cont. Nucleus Connect: For residential premises, S$21 (R$26) per month for a 100 Mbps connection and $121 (R$150) for a 1Gbps connection (includes OpenNet’s charges) For non-residential premises, S$75 (R$92) per month for a 100 Mbps connection and S$860 (R$1060) per month for a 1Gbps connection (includes OpenNet’s charges) As with OpenNet, every 3 years subsequently, IDA reviews Nucleus Connect’s prices, comparing them to “target prices” Legal and Regulatory Advisors

New Zealand LFC’s access prices determined by the competitive bid process (i.e. as bid by the Partner), similar to Singapore Price review uncertain at this stage Government resisting requests by potential Partners for regulatory certainty no regulation initially, but no guarantee of a regulatory holiday either Legal and Regulatory Advisors

Australia NBNCo likely to provide an access undertaking, for approval by the regulator This will provide regulatory certainty for access prices for that service for the period of the undertaking Legal and Regulatory Advisors

How Governments are responding to demand risk

New Zealand CFH funds entire roll-out of “Communal Infrastructure” (POIs, aggregation fibre, splitters, distribution fibre, ducts etc.) in a local area Partner funds “End-User Specific Infrastructure” (fibre tails connecting to end-user premises), only when the end-user requests connection Legal and Regulatory Advisors

Singapore For OpenNet: In the initial roll-out period, OpenNet provides a waiver of the installation charges for the first 15 metres of fibre run within the premises; after the initial roll-out period, there will be an installation charge Legal and Regulatory Advisors

Australia Nothing specific (although links to how the Government deals with Telstra, the incumbent) Legal and Regulatory Advisors

How Governments have approached the rural areas

Australia Investment by the Government of up to A$250m (R$395m) to address backhaul black spots throughout regional Australia – a tender will be awarded to build, operate and maintain backbone transmission links to certain priority regional locations NBNCo fibre will extend to towns with a population of around 1,000 NBNCo next-generation wireless and satellite will provide broadband speeds of 12Mbps in more remote areas Legal and Regulatory Advisors

New Zealand Government investment of up to NZ$300 million (R$375 million) to improve rural broadband – funded directly from Government and from an industry levy Targeted at the areas beyond the coverage of the FTTP network Key objectives (using mixture of fixed, wireless and satellite): 100Mbps+ to 97% of schools; and 5Mbps+ to 97% of households and businesses Legal and Regulatory Advisors

Singapore Not applicable. Legal and Regulatory Advisors

Thank you. www.webbhenderson.com malcolm.webb@webbhenderson.com Legal and Regulatory Advisors

Legal and Regulatory Advisors Auckland | Sydney