Watchdog urges Julia Gillard to reject NBN's monopoly plan

It is understood the Australian Competition and Consumer Commission has told the government to discard the NBN Co's contentious plan to build only 14 points of interconnection - where retail service providers will hook into the fibre network to deliver broadband services to consumers - in five capital cities and require 200 points to be implemented.

The rejection could slash the NBN Co's commercial returns from the services it plans to eventually sell and would curb its market dominance.

NBN Co expects to produce returns that will beat the long-term government bond rate, which is a modest 5.41 per cent - but this was predicated on its strategy of 14 interconnection points.

The heavily edited summary of its business case, released last week, argued that if the government's solution on interconnection points "does not promote the same intensity of retail competition", the company's internal rate of return could be 50 to 80 basis points lower. This would be because of a "slower take-up of broadband and slower introduction of retail services that require higher speeds".

The ACCC's advice has been presented to the government and is awaiting delivery to cabinet next week for final consideration.

Critics had complained the NBN Co's plan was wasteful because it bypassed hundreds of millions of dollars worth of existing fibre-optic cable built by companies such as Telstra and Optus.

Concerns were also raised that the plan would make the NBN Co too powerful and crowd out competition. "It was crazy of them to want to overbuild parts where there are functioning competitive markets," said one industry source. "It's a win for the industry and it will remind the NBN Co who is in charge here."

The NBN Co has been arguing its plan is the best way to deliver uniform national wholesale pricing. An NBN spokeswoman said last night the body had "said consistently that industry structure is a matter for government and that we will build whatever number of POIs they decide following consideration of the recommendations flowing from the ACCC's public consultation process".

Julia Gillard promised a uniform national wholesale price as part of a policy aimed at maintaining the support of independent MPs Rob Oakeshott and Tony Windsor. There are now concerns about how the government will deliver on that promise.

It is understood the advice to government seeks to tackle the issue via other mechanisms, such as subsidies to regional and rural areas funded from the federal budget or an industry levy. The NBN Co's plans had infuriated major telecom companies, which said it would serve only to leave unused assets that could otherwise have been used to lower the costs paid by consumers.

The telcos had warned that execution of the strategy would have resulted in compensation claims worth "hundreds of millions" of dollars.

Yesterday, the industry was relieved at suggestions the advice to government supported their position. "People seem to think we support an NBN under any circumstances, " said Optus director of government and corporate affairs Maha Krishnapillai. "There are a whole lot of decisions that make NBN borderline and this is one of them. One of the most important principles has been wholesale-only and maximum competition wherever possible, so it's a good thing we are now moving in that direction."