Viewed
The Australian: Passage of NBN bill signals a dark day for telecom competition
THERE are many troubling features of the NBN legislation that has been passed by the commonwealth parliament.
The cost is staggering. We learned last week that the Gillard government's NBN Co will spend $49 billion on the network between now and 2020, up from the $43bn first quoted when the plan was announced in April last year.
The risk exposure of taxpayers is alarming. One hundred per cent of the equity funding for this highly risky venture -- some $35bn -- will come from taxpayers.
The government's recklessness is extraordinary, committing to this massive project without even bothering to do a cost-benefit study. But the most troubling issue is this: the government has dumped the longstanding policy goal of increasing competition in telecommunications.
For the past two decades, under both Liberal and Labor governments, the priority in telecommunications has been to establish a competitive market structure and to rely on companies, primarily privately owned, to deliver services to customers. Both sides of politics saw a competitive market as the best way to deliver the lowest prices for consumers, the highest service levels and the investment necessary to ensure continual upgrading of the technology used to deliver services.
That approach has been vindicated in the mobiles sector.
There are three different companies operating national mobile networks. The number of people with a mobile service has rocketed over the past 15 years. Prices have dropped steadily and sharply, and the rate of innovation has been relentless. We have gone from analog AMPS to digital GSM to 3G to mobile broadband, with plenty more change coming.
Results in the fixed-line sector have not been as good, principally because Telstra remains far too dominant due to its vertical integration. That is, Telstra is the monopoly network owner in most parts of Australia, and it is also the largest retailer. Telstra competes with other retail service providers such as Optus, iiNet and Primus, but those companies largely deliver their services over Telstra's network. That gives Telstra a huge advantage, which it has unsurprisingly ruthlessly exploited.
The Labor government evidently thinks that solving this problem requires a complete change of approach. Apparently it is now the role of government to specify particular broadband speeds (100Mbps) and network reach targets (93 per cent) and technologies (fibre to the home.)
Labor has replaced the goal of competition with the fetishistic pursuit of these particular targets and established a government entity to reach them. The Coalition vigorously disagrees.
Labor' s proposed solution to this problem is much more complex than it needs to be; much more expensive than it needs to be; and comes with some very nasty side effects. Labor's plan, implemented through the NBN Bill, is to force Telstra to shut down a significant part of its business -- its local access network. At the same time, Labor is establishing a new, government-owned company that will build, from scratch, a brand new network.
There is a more straightforward way to address Telstra's vertical integration -- by splitting the existing Telstra into two companies under separate ownership. One such company would own and operate the existing customer access network (CAN). This company (say, CAN Co) would sell services to a whole range of retail service providers. The other company would be a retail service provider, which would be one of the many companies paying CAN Co to use the CAN.
Labor is committing almost $50bn of taxpayers money on a risky venture that may or may not succeed. The plan has some very nasty side effects, and will do fundamental damage to competition in telecommunications.
Because it is betting so much on this risky venture, Labor is desperate for NBN Co to be a financial success and has succumbed to temptation to rig the market to protect NBN Co from competition as much as possible.
That is why Broadband Minister Stephen Conroy says he will legislate to control the prices to be charged by any company that enters the market to build a network to compete with the NBN.
That is why NBN Co will spend almost $14bn between now and 2020 in payments to Telstra in exchange for Telstra shutting down its existing network and shifting its customers across to the NBN.
That is why Labor is legislating to permit this deal to go ahead when it would otherwise be a breach of the Trade Practices Act as a contract that lessens competition.
That is why NBN Co has proposed that there be only 14 points of interconnect around the country, located in the five biggest cities only, where retail service providers using the NBN can transfer traffic from the NBN across to their own networks. By forcing RSPs to carry traffic on the NBN for the maximum possible distance, NBN Co will be able to charge the RSPs more. In fact, the NBN business case summary reveals this proposal increases NBN Co's rate of return by up to 0.8 per cent.
But this proposal is very bad news in public policy terms. It will weaken competition and wastefully bypass thousands of kilometres of existing fibre-optic cable.
The NBN policy has subordinated all other considerations -- competition, pricing, innovation -- to a fetishistic pursuit of a particular broadband speed. The passing of the NBN legislation is a dark day for competition in Australian telecommunications.
Paul Fletcher is the Liberal Member for Bradfield. He is a former telecommunications executive and author of Wired Brown Land: Telstra's Battle for Broadband (UNSW Press, 2009).
