NBN Co defiant in face of uncertain telco industry

For all the benefits the Federal Government intends to reap from its $43 billion National Broadband Network (NBN), the negative aspects of a complete revolution of Australia's telecommunications industry are starting to become all too clear.

Every telecommunications player with an Australian presence - and even some without - is committing a significant amount of financial and staff resources in order to play a part in the rollout and maintenance of the network, with the hope of gaining an early foothold in what may become the epicentre of the local industry in eight years' time. However, with major tenders still to be released and negotiated, not everyone can be a winner in the new telco game.

The significance that the network and its key wholesaler, NBN Co, will play in Australia's future - and the impact it will have on competitors and enablers alike - is in a constant increase, with landmarks like the Financial Heads of Agreement deal with Telstra effectively eliminating major competitors to the fibre-to-the-home (FTTH) network. That, though, all impinges on the notion that the NBN will actually go ahead - should Australian voters decide to put the Coalition in Federal Parliament, the entire network could be scrapped in as little as a month.

That decision will ultimately reveal the absolute cost of employees and potentially entire companies that must be factored in as tenders are decided and the winners are sorted from the losers.

NEC became the latest in a raft of companies to announce job cuts as a result of the NBN, closing its local research and development centre for networking and making 67 staff redundant after failing to secure a valuable contract for the supply of gigabit passive optical network (GPON) and Ethernet aggregation equipment for the NBN.

However, even the contract's winning bidder, Alcatel-Lucent, wasn't immune to such cuts, culling 200 staff from its Australian operations - including 140 full-time employees - for the second time in eight months over what it has called an uncertain telecommunications industry.

The company's Australian chief technical officer, Ric Clark, recently voiced the concerns that many telecommunications players are inevitably sharing at the moment.

“The only people that are really hiring in our industry is NBN Co itself, they've got a real mixed bag of people out of virtually all of the vendors and a number of the telcos,” he told Computerworld Australia.

NEC's departure could be seen as premature - though the GPON contract is worth a total of $1.5 billion over the life of the NBN, Alcatel-Lucent has only secured $85 million worth of equipment and services so far, with the remainder of the value pending a successful rollout and maintenance of its first stage. Should NBN Co decide so tomorrow, it could hand the remainder of the contract to any vendor it chooses.

Australia's largest telco has been hit hardest by the network, with a $9 billion deal seeing Telstra hand over its copper, broadband customers and its monopoly in the market in exchange for wireless broadband spectrum and a new treasure chest with which it currently doesn't know what to do with. While a non-binding agreement, should the NBN go ahead the telco will in all likelihood become structurally separated - the single biggest change to the Australian telecommunications industry since the company's privatisation - with the consolation that it can at least retrain its staff with government funds. Unlike NEC and Alcatel-Lucent, Telstra will retain staff relevant to an NBN world, but the 900 low-level staff which service its current customers aren't so lucky.

Large telecommunications tenders are often the trigger point for mass redundancies - Ericsson last week signalled one of the few staff cut ploys not related to the NBN. However, the amount of attention paid to a network that is not yet legislated or guaranteed to go ahead has become a point of worry.

Of those involved, NBN Co seems the least worried.

"At a commercial level, we're very conscious that if NBN Co is directed to stop, we don't lock the government of the day into significant penalties," the company's head of corporate affairs, Kevin Brown, told Computerworld Australia.

The wholesaler is defiant a potential closure would not adversely affect the industry or hurt the taxpayer. It has secured the latter through exit clauses in each of its service contracts, allowing it to back out under short notice with few penalties.

NBN Co's contracts themselves are of a self-admittedly different nature to those often found within the industry. In the majority of cases, payments are made to the contractor after the fact; in the Telstra-NBN Co agreement, for instance, the telco will only be paid the $9 billion progressively, as it decommissions its copper network.

But the company's effects on the telecommunications industry, whether or not it is a remnant of the past come 2011, are becoming obvious.

"We're using taxpayers' money, and no one's going to be satisfied with the approach of 'I don't want to upset the industry by driving a tough bargain'," Brown said in defence of NBN Co's negotiations with companies.

"We've reached agreements with a number of suppliers now, most of whom are global businesses, none of whom appear to be under threat of closure if the contracts are cancelled."

Apart from exit clauses, the company has no real contingency plans: "You can't spend your time trying to figure out how not to build the network", Brown says. For the meantime, fortunately, it is of little recourse; 14 months after its announcement, there are few real-life examples of the network in action. If Abbott were to be sworn in as Australia's new leader next month and follow through on his promises, there would probably be little to worry about for the public hip-pocket.

However, should the network face issues in future or perhaps collapse halfway down the line, the ramifications on the industry and Australian public are yet to be answered. After all, what do you do with a half-built fibre network?

"I'm not spending a lot of time planning for failure," Brown said. "What we are doing right now is being very prudent about the contracts we're entering into, so if we're instructed by our owners to exit, then we can at least cost."


Copyright © 2010 IDG Communications, Inc.

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