Telstra compensation risk cited for NBN RFP collapse

The liability of the Commonwealth or one of the private sector bidders to have to compensate Telstra for exclusive or near-exclusive access to its last mile sub-loop was a key reason for the collapse of the RFP, new documents reveal.

An extract from the expert panel's evaluation report dated 20 January 2009 shows the RFP had collapsed due to a number of factors.

These include the ability of the bidders to raise appropriate capital and the fact that "no proposal submitted a business case that supports the roll-out in five years of an NBN to 98 per cent of Australian homes and businesses with a Government contribution of $4.7 [billion]."

"All proposals were to some extent underdeveloped," the document said.

"No proposal, for example, provided a fully-developed project plan. None of the national proposals was sufficiently well developed to present a value-for-money outcome.

"[But] each proposal contained attractive elements that, taken together, could form the basis from which a desirable outcome might be achieved."

The expert panel opposed the rollout of fibre-to-the-node (FTTN) technology, stating it was "unlikely to provide an efficient upgrade path to fibre-to-the-premises [FTTP]", which it favoured.

The panel also recognised that going down an FTTN path would "likely require exclusive or near-exclusive access to Telstra's existing copper sub-loop customer access network".

"Providing such access to a party other than Telstra runs a risk of liability to pay compensation to Telstra," the panel said.

"The proposals have this risk remaining with the Commonwealth but they have not addressed to the potential cost... of any such compensation.

"In any event, the panel considers that no proponent could accept the cost risk and continue to have a viable business case."

The panel also revealed that it "was not attracted to what it saw in some cases as proposals for excessive overbuild protections".

That finding will undoubtedly be a victory for Telstra, which has been campaigning heavily for the right to build rival HFC and high-speed wireless networks that will compete with the NBN.

The Government announced this morning that it had taken the expert panel's advice and terminated the NBN RFP because "none of the national proposals offered value for money."

Instead, it announced it will form a state-owned enterprise to build an FTTH network in combination with private suppliers.

It anticipates selling off its interest in the enterprise within five years - but only if the network is "built and fully operational."

The plan has already gained support from leading ISPs such as Internode and iiNet.