Vertigan hands Turnbull a knife, Turnbull carves Vertigan report

It would be hard to find a more doctrinaire document than the final Vertigan panel's Markets and Regulatory Report that was handed down yesterday. The panel has managed to produce a report so far off realpolitik that the government had no choice but to damp it down immediately.

The document takes to heart Tony Abbott's notorious instruction to Malcolm Turnbull, while in opposition, to “demolish” the project. The NBN Co should be “disaggregated and divested”, rural cross-subsidy abandoned, and full cost-recovery of builds to new housing estates should be mandated.

So far is the report from the practical reality of politics, only page two, “This page is left blank intentionally”, has any chance of wholehearted endorsement from the government. The rest is a clarion-call of free-market warriors of the 1980s, so extreme that communications minister Malcolm Turnbull had no choice but to both welcome the report and distance himself from it.

The best Turnbull could say about the proposal that NBN Co be broken up is that it “has a lot of merit from a theoretical point of view”, in conversation with the ABC's AM radio program on October 2.

NBN Co break-up dismissed

The break-up, Turnbull said, would spike the chance of NBN Co actually completing the network (which appears, from Vulture South's reading of the document, to be the point: the fundamental free-market ideology says NBN Co should not exist). The best endorsement Turnbull would give to the idea is that when the network's finished, some future government might consider it.

However, that doesn't address the frankly incredible rationale the panel offers for the break-up. The panel writes that cutting the network up according to “its existing network and planned technologies” would mean “For the first time since Australia’s reform process began in the 1980s, this would provide a market structure in Australia where similarly sized networks would compete, much as happens in North America and significant parts of Europe”.

In reality, almost no such infrastructure-based competition would flow from the break-up. In areas where the FTTP is completed, FTTN and HFC networks won't exist. Even though the NBN satellites' signals will be present in cities, satellite services won't ever be competitive where fixed services of any kind exist. Fixed wireless has the same problem: it won't compete with fibre, copper or HFC services.

In other words, the only places infrastructure competition would exist under the Vertigan model would be where HFC and copper overlap: a few capital city pockets that would get cheaper services.

The Vertigan report believes that a disaggregated transit network would “be a powerful competitor in the transit and backhaul market”, which is an odd position to hold given that NBN Co operates none of its own backhaul, only the POIs (its backhaul is leased mostly from Telstra).

Then there's the question of greenfields developments, one that's dogged the NBN practically from the start.

To let the non-NBN fibre builders back into the housing development market, something Turnbull accurately says was “smashed” by NBN Co's mandate to build the access network for free, the Vertigan report suggests “full cost recovery” from NBN Co for builds in new estates.

This would, as Turnbull said to AM, “level the playing field”, but it would be completely unpalatable as politics. Again, Turnbull's response to the report was ideologically warm but pragmatically chilly, with the minister only saying “we're looking at ways” to level the playing field without full cost recovery.

Cross-subsidy won't be touched

Turnbull didn't even manage theoretical warmth about the idea that NBN Co's universal national pricing be abandoned. The internal cross-subsidy, the report says, should be shifted to the government's budget (something Turnbull said would cause treasurer Joe Hockey to “turn green”).

Asked if the government would take the panel's advice on this, Turnbull was blunt: “Of course not. Without subsidy there would be no telecomms to the bush”. It might be that the government go so far as to include a line-item breakout on service bills to spell out how much of the bill subsidises the bush, he said.

So far, The Register has barely scratched the surface of the report. We haven't delved, for example, into the depth of doctrine that can argue that fibre-to-the-node is a better bet than fibre-to-the-premises because the former can be upgraded to the latter, but FTTP can't be upgraded at all.

The government has paid for these reports, only to reject nearly all of their findings. Thus we are governed. ®