Some Internet Service Providers (ISPs) are sceptical of the Federal Government's move to greatly increase the number of Point of Interconnects (POIs), despite in-depth negotiations.
NBN Co released its full business case today detailing its intention to establish 120 POIs across Australia. This is a big jump from the 14 POIs it initially proposed but intervention by the Australian Competition and Consumers Commission (ACCC) made NBN Co alter its plans.
Internode carrier affairs manager, John Lindsay, expressed the ISP’s disappointment in the increase, claiming it would be “inefficient” and not cost effective for ISPs that use Telstra wholesale DSL services.
“They will go from having to connect to one POI per state to having to connect to lots of them,” he said. “Each of those requires headroom bandwidth to ensure good performance so that leads to operational inefficiencies and capital costs associated with building out to those POIs.”
Telco analyst, Paul Budde, agreed that more POIs means more cost for smaller players to install their equipment.
Internode claims a higher number of POIs will benefit the big boys such as Telstra and Optus that have a large network covering the country.
“I don’t think the ACCC gave the smaller guys any consideration,” Lindsay said.
ispOne has also openly criticised the number of POIs.
"The NBN Co’s decision to put in place 120 POI’s is a negative for the industry," ispOne managing director, Zac Swindells, said in a statement. "Despite the dominant infrastructure players being up in arms about stranded assets and sunk infrastructure costs, the original proposed 14 POIs would have led to smaller players having an opportunity to compete on a level playing field and reduce costs associated with infrastructure; now this is not the case."
ispOne claimed associated infrastructure and backhaul costs to ISPs will exceed $2 million and will force some players out of the market.
Indeed NBN Co had noted in its business case summary that keeping POI numbers down to the initial 14 would increase competition on a retail level and impact the rate of return.
But Conroy told ARN while he was aware of the smaller ISPs' arguments, NBN Co acted on recommendations from the consumer watchdog.
“We went to the [ACCC] and it looked at this itself and this is its recommendation we’ve adopted,” he said.
Conroy claimed the detrimental effects from boosting the number of POIs - originally feared by NBN Co - would be reduced by the ACCC's role in controlling backhaul prices.
“The issue was if there were higher prices in regional areas there would be a smaller uptake there,” he said “But the ACCC has indicated it would be prepared to regulate a price for backhaul if necessary.
“Providing it does that, there should be minimal impact on actual take-up rates because prices would be comparable.”
But it is a two-sided coin for NBN Co. While this now means NBN Co doesn’t have to build as much backhaul, saving on cost, it will have to pay more to access more exchanges Telstra currently owns, according to Conroy.
While the Internet Industry Association (IIA) could not provide detailed commentary on the issue of POIs, IIA chief, Peter Coroneos, said it was a hard act to please everybody.
“This is a very difficult exercise to balance what are competing considerations,” he said. “On one hand, you've got the cost of the project being funded by taxpayers on the other hand you have the ISPs that will undoubtedly experience a shift in competitive landscape as result of NBN.”
Internode remained concerned about how the POIs will affect broadband competition especially in rural areas which have largely been neglected by current ISP market models.
“In less dense areas the cost of backhaul, even where competitive backhaul is available, is very expensive,” Lindsay said. “You could actually see a continuation of competitive ISPs essentially avoiding delivering services outside of metro areas because it will be significantly more profitable to do it where it is cheaper to service the end users.
“The result may be that a lot of rural users end up with less choice, but I couch that as a maybe.”