Internode warns: New PoI model could consolidate ISP industry

Internode still prefers minimalist version supporting just 14 PoI points around Australia

Simon Hackett on Sunday published a strident critique of the large number of Points of Interconnect (PoIs) model being promulgated by Australia’s larger telcos, instead backing NBN Co’s own minimalist vision. But what does the Internode chief think of the new model outlined by the Government yesterday, which mandates a number somewhere in between?

According to an updated blog post published yesterday, not much.

“Obviously this is not my preferred outcome,” wrote Hackett in an epilogue to his extensive analysis of the matter over the weekend. “… As consumers, we will also have to hope that this doesn’t then end up with ’super-consolidation’, much like the banking industry.”

Points of Interconnect is a term which refers to the areas in NBN Co’s network where other telcos can connect their own networks up, allowing them to access the company’s fibre, wireless and satellite services as they are built out. NBN Co and a number of smaller telcos like Internode had preferred a minimalist version supporting just 14 such points around Australia, while larger telcos had wanted more — at least 200.

However, Communications Minister Stephen Conroy revealed yesterday the Government had accepted the Australian Competition and Consumer Commission’s recommendation of 120 PoIs — 80 in metropolitan areas and 40 in the bush.

Yesterday Hackett wrote that the 120 PoIs model was “a bit of an artificial construct” as it would keep an existing backhaul market (driven by Telstra and Optus) supported to an extent in the new NBN world.

This would mean, he said, that Telstra’s rivals would see increased costs because they would have to maintain 120 PoIs around the nation to be competitive, while Telstra would already have infrastructure to the PoIs because they would mainly be located in its exchanges.

To demonstrate the model’s actual costs, the Internode managing director published some of his financial calculations on the matter.

To service each Point of Interconnect, Hackett wrote, ISPs would need what NBN calls a Connectivity Virtual Circuit (CVC) connection of 200Mbps — in other words, a 100Mbps ‘burst’ capacity plus the base 100Mbps rate. The ISP has learnt this lesson from the bandwidth required to service existing NBN fibre customers in Tasmania.

Because of this, Hackett added, the cost of maintaining a connection to each PoI nationally per month would be 120 (the number of PoIs) multiplied by 200Mbps of bandwidth multiplied by NBN Co’s cost of $20 per megabit — which would end up at $480,000 per month, not counting the cost of actual backhaul back to the ISP’s network.

“This large number of Points of Interconnect will, therefore, drive the industry toward having a smaller number of bigger players, rather than a larger number of smaller players, as the overheads of operating (and ramping up to survive all the way to that terminal size) in 120 PoIs may be too much for very small players to afford,” Hackett wrote.

“Internode is large enough to do this, but I am a bit concerned for anyone who is much smaller than we are.”

Industry players such as iiNet have already commented publicly on the consolidating ISP market in Australia. In August the ISP’s chief executive Michael Malone noted there were only four and a half meaningful players left — Telstra, iiNet, Optus and TPG — with Internode being the “point five”.

However, Vodafone, for one, has flagged that it could enter the fixed broadband market in Australia if the NBN goes ahead if planned.

Despite his disagreement with the PoI model, Hackett noted in a separate statement that his company was still “enthusiastic and committed” to making the NBN (and Internode’s participation in it) a huge success, and that it was good to see the NBN pricing released.

“We applaud the principles of open access and a level playing field on price and access conditions for the NBN, and we implore the government to remain true to those principles while the necessary legislation and regulatory processes are developed and defined in 2011,” the Internode chief said.

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