Wed, 29 Jun 2011 - 21:00
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The Australian OpEd: Broadband monopoly is bad policy, bad business, and bad for you

LAST week's announcement of the deal between Telstra and the NBN Co is another reminder of how comprehensively the National Broadband Network has perverted telecommunications policy in Australia.

For 20 years, the guiding principle of telecommunications policy has been to increase competition to encourage private operators to invest in competing networks and thus maximise the choices available to users.

It started in 1991 when the Hawke-Keating government began to open up the telecoms sector to competition. It granted Optus and Vodafone licences to operate mobile networks, and Optus a licence to compete in fixed-line.

The Howard government continued this bipartisan reform direction in 1997, removing all restrictions on entry to the telecommunications sector.

The benefits of competition have been overwhelmingly positive. In the mobile sector, innovation has been relentless, prices have dropped sharply and take-up has been so strong that every Australian has a choice of mobile phone services.

Even though the fixed sector has been hampered by Telstra's market dominance, competition has delivered benefits there as well. According to the ACCC, the average real price for fixed-line telecommunications services declined by 34.1 per cent between 1997-98 and 2008-09.

Nearly 1 million households receive broadband services from a competitor to Telstra such as Optus, iiNet or Primus -- over the unbundled local loop.

That lets the competitor rent Telstra's copper line and combine it with its own electronic equipment to deliver a broadband service.

As well as delivering cheaper prices, competitors using ULL were the first to introduce an upgraded, higher speed version of DSL, called ADSL 2+.

The track record is certainly not perfect, but telecommunications competition has delivered lower prices, better service and more innovation, consistent with the objective set out in the telecoms legislation, of serving the "long-term interests of end users".

But since the Rudd government's April 2009 decision to build a government-owned national broadband network, the goal of Australian telecommunications policy has changed.

In announcement after announcement, the Rudd and Gillard governments have put competition second to building a shiny new fibre to the premises network.

For example, last year we learned that the government-owned NBN Co would own and operate not just a fibre network in the cities, but wireless and satellite networks in rural and remote areas as well.

The NBN Implementation Study, commissioned by the Rudd government from consultancies McKinsey and KPMG, had recommended these other networks should not be owned by NBN Co, not least because of the capacity of independently owned networks to deliver additional competition.

Then the Gillard government revealed legislation late last year that seeks to protect NBN Co from competition by making it illegal to build and operate a network capable of operating at speeds of 25Mbps or more to deliver retail services directly to consumers or small businesses.

It is also illegal to operate such a network unless you agree to offer a wholesale service -- a so-called layer-two bitstream service -- which is what NBN Co will be offering.

The Gillard government also announced, and last week's deal with Telstra has now confirmed, that NBN Co will pay Telstra billions of dollars for Telstra to stop serving customers over its own network so that these customers can instead be served by the NBN over Telstra's network.

This is a deal between two competitors under which the first one runs dead so the second can take over its customer. It would be illegal under competition law if the Gillard government had not changed the law to allow it.

Last week's announcements struck two further blows against competition. First, we learned that Telstra has promised NBN Co that for 20 years it will not promote wireless services as a substitute for the fibre-based service to be offered by NBN Co.

In other words, Telstra has promised its major competitor that it will pull its punches in wireless, rather than going all-out to win.

Secondly, we learned that Communications Minister Stephen Conroy will pay Optus $800 million in exchange for Optus ceasing to offer broadband services over its cable network.

So consumers in the 1.4 million premises passed by the Optus network will no longer have the option of taking broadband services over that network, and more than 400,000 customers who have an Optus cable broadband service will be transferred to the NBN.

How can it be good policy to spend $800m of public money to shut down a network that is only 15 years old and is already capable of delivering the same speed, 100Mbps, that the NBN is going to deliver?

And why would a government pay a private company to induce it to withdraw from the market and thus to reduce competition in the marketplace?

The answer is obvious: because the Rudd and Gillard governments have abandoned the goal of increasing competition in telecommunications. This is profoundly bad news for consumers. They might get a shiny new network, but it will be a monopoly.

Welcome to Australia's broadband future, brought to you by the Rudd and Gillard governments: higher prices, less choice and poorer service.

Paul Fletcher is a Liberal MP, a former telecommunications executive and author of Wired Brown Land: Telstra's Battle for Broadband (New South Books, 2009)