Tue, 21 Jun 2011 - 21:00
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NBN: telecommunications competition is being strangled

 This government would have you believe that the National Broadband Network represents a holistic solution to competition in telecommunications. In fact it is increasingly clear that telecommunications competition is being strangled because this government is determined to push ahead with a shiny new network and ranks that as a higher priority than a competitive market in telecommunications. Despite the rhetoric, for at least the next decade Telstra's will be the only network connected to a very large number of homes in Australia.

Over that time the government plans that the number of homes served by the NBN will gradually rise but, even if it meets its ambitious timetable, the job will not be completed until 2020. And it is already running well behind the timetable. The NBN Co. corporate plan said there would be around 1.27 million homes passed by fibre by 2013, but they are running well behind schedule, with less than 1,000 services in place right now.

So one of the single most important parts of the regulatory arrangements is the component contained in the draft structural separation instruments, recently released, which set the rules that Telstra will be required to follow for as long as it is a vertically integrated network. But, unfortunately, it is clear from the terms of this draft document that the Gillard government is giving Telstra a very soft ride indeed. The government's stated objective is to impose upon Telstra a requirement that 'industry is able to access Telstra's copper network on a transparent and equivalent basis' during the transition period. In simple terms, what equivalence should mean is that a vertically integrated company like Telstra sells services to its retail competitors on the same basis as it sells those services to its own retail business. But the draft ministerial direction does not even contain a clear statement of what 'equivalence' is.

It is clear that this is nothing like tough enough to impose real competitive safeguards on the vertically integrated monopolist, and Telstra has a proven track record of doing as little as it can get away with in meeting regulatory obligations. For example, since 2005 Telstra has been required to have a position with the Orwellian title of 'director of equivalence'. But Telstra gives every indication of having specified to the holder of that role that his or her key performance indicator is to do absolutely nothing.

Extraordinarily, the draft ministerial direction proposes that once again Telstra should self-police by setting up and funding its own adjudicator. Similarly, the draft direction fails to contain any of the requirements of Telstra that you would typically expect in this situation. There is no requirement that Telstra specify its transfer pricing arrangements and publish transfer pricing lists. There is no requirement for internal contracts setting out non-price terms of supply. There is no requirement for stronger ring-fencing of staff and no prohibition on cross-divisional responsibilities. And there is no requirement that compliance and disputes with the arrangements be overseen by an independent body.

We have already seen several ways in which the NBN arrangements sell out competition. Telstra and, it is now reported, Optus will be paid to shut down their networks and transfer customers across to the NBN—an arrangement between competitors that would be illegal under trade practices law were it not for the Gillard government changing the law to permit it. Further, specific legal barriers have been imposed upon any player proposing to enter the market in competition with NBN, including being required to comply with NBN Co.'s technical standards and prices.

The reality is that the Gillard government is as desperate to do a deal with Telstra on NBN as it is with Malaysia on asylum seekers and it has given Telstra, which remains the dominant fixed line monopolist, an incredibly generous arrangement here. It is true that these are only drafts and that the arrangements will need ACCC approval, but the ACCC has to make a one-time yes or no decision on the entire package of structural separation undertakings to be lodged by Telstra, including these interim arrangements, and the ACCC will be under huge pressure from the Gillard government to wave these arrangements through in their totality.

The arrangements which are contained in the draft instruments which have been released are so weak as to be, in practical terms, useless. The question is whether the Gillard government will respond to the submissions of the competitive side of the industry and materially toughen up the arrangements which apply during the interim period in which the majority of Australians will still be getting their services from Telstra or over the Telstra network. If the Gillard government does not materially toughen up these arrangements for the interim period, it will be very bad news indeed for competition and for the large majority of Australian telecommunications consumers who will still be using Telstra's network.