Communications Minister Malcolm Turnbull and Finance Minister Mathias Cormann have let the cat out of the bag in their recent letter to Australian Competition and Consumer Commission (ACCC) chairman Rod Sims.
If nothing else, the communique reads like an attempt to placate Telstra, which holds all the cards in the NBN negotiations and whose position gets stronger by the day.
Given the bargaining chips in Telstra’s possession, the government has little choice other than to give ground. But does the competition watchdog share the sentiment?
The Coalition government finds itself mired in an industry quagmire and the letter to Sims demonstrates how desperate it is for respite. The early overconfidence in its ability to influence business and installing the legislative and regulatory framework necessary to support a major change in the status quo seems to have dissipated.
The communications portfolio was always going to test a new minister and we have not been disappointed so far. Turnbull’s apparent failure to learn from the former government’s battle to subdue Telstra could be his undoing.
The mere mention of Turnbull’s name is likely to remind Telstra chief executive David Thodey of the famous line uttered by the media mogul Kerry Packer when he said, "You only get one Alan Bond in your lifetime, and I've had mine."
Losing sight of the big picture
One wonders if the Coalition government still sees the big picture here, whereby all of the interrelated parts that make up the telecommunications sector will need to be reviewed and changes implemented in concert. Ten months have elapsed since the Coalition came to power and so far it has achieved little more than instructing NBN Co, an organisation under Turnbull and Cormann’s direct control, to use five rather than three access network technologies.
The Labor government may not have done everything right but it had a pretty big job. It had to gain the broad support of the greater majority of telecommunication companies and sell the NBN to consumers. NBN Co was created and given instructions on what to do. Next a big stick was taken to Telstra during lengthy negotiations that led to the 2011 NBN Co Telstra agreement and Telstra’s 2012 Structural Separation Undertaking (SSU).
Legislation was altered, with the crucial support of a friendly Senate, to provide a regulatory framework that would support the NBN during its early years and the ACCC’s authority to regulate particular aspects of the telecommunications industry was increased.
The Coalition's task is even larger. It has to do all of this again, and Turnbull and Cormann’s letter to Sims is a prime example of the inertia plaguing the process. Apart from tinkering around the edges the government has achieved little. It hasn't managed to introduce legislation to exclude the 2011 NBN Co-Telstra agreement from regulatory determinations. Any changes to the copper fixed-line service fees would reduce the Copper Access Network’s (CAN) value to Telstra and potentially mean that the government would have to underwrite losses as part of the renegotiated agreement between NBN Co and Telstra.
So what does the government do? Turnbull and Cormann write to Sims arguing that the 2011 agreement between NBN Co and Telstra should be ignored during the ACCC’s public inquiry into making Final Access Determinations (FADs) for the declared fixed-line services.
Arguing that a determination by the ACCC leading to a downward adjustment of fixed-line service pricing is bad for consumers beggars belief. What a ham-fisted attempt to influence the ACCC, a regulator that is required to take into account all reasonable information and industry pricing agreements when setting regulated prices.
To fail to include the 2011 agreement would lead to chaos where other companies will argue that their pricing agreements should be ignored.
If the ACCC complies with the government’s wishes then it is important that the decision be tested in court. Any suggestion that consumers should pay higher prices to utilise the obsolete and degrading CAN is unacceptable and demonstrates the level of desperation surrounding Turnbull’s office at the moment.
Telstra shareholders versus consumers
You might think the government would be interested in protecting the interests of 22 million Australian consumers... but you would be wrong.
The government letter states, “the terms agreed by Telstra, NBN Co and the government were approved by Telstra’s 1.4 million shareholders in October 2011. It will undermine the integrity of this deal if Telstra shareholders are deprived of the benefit of arrangements they did not initiate but negotiated in good faith.”
Wait a minute. Why would the government intervene to protect Telstra shareholder interests?
Can you remember the last time a Coalition government espousing an 'open and competitive market' mantra intervened to protect the interests of shareholders in what might be considered to be a regulated monopoly fixed-line infrastructure provider?
Australian consumers should expect the CAN prices to become cheaper over time. As the FTTP NBN is rolled out there is less CAN for Telstra to maintain and operate, and we know now that Telstra has significantly reduced CAN maintenance over the past decade.
Ministers Turnbull and Cormann contend that an adverse decision “may weaken Telstra’s commitment to current reforms”. But surely Telstra’s negotiators were well aware before signing up to the 2011 agreement with NBN Co that the ACCC would be making price determinations during the life of the agreement? The NBN legislative framework was put in place before Telstra finalised the 2011 agreement, when the CAN was consigned to history.
Telstra would have factored into the 2011 agreement the cost of maintaining and operating the CAN as it was reduced in size and replaced over the 10-year FTTP rollout. But now that the Coalition wants to use the CAN for the mixed-technology NBN, Telstra will be fully aware that any downward price determination by the ACCC for fixed-line services will put pressure on its bottom line, particularly due to Telstra’s decision to lease the CAN to NBN Co for FTTN.
Let Telstra fight its own battles
If Telstra is not happy with an ACCC determination then it has the right to take the matter to court. The government is fully aware of Telstra’s judicial option and is even more aware that Telstra is no stranger in court when it comes to settling contract disputes.
Didn’t Telstra take NBN Co to court recently and win a judgement against NBN Co for $200 million in taxpayers' money in a dispute over when the consumer price index (CPI) adjustments should start?
So why would the government write to the ACCC? For political reasons, of course.
Failure to secure a renegotiated agreement between Telstra and NBN Co at the right price could mean an end to the government’s NBN dream. If Australian consumers have to pay more so the government can keep its election promise to provide Australians with a slower and less capable NBN sometime after 2020 so be it. This government appears to be ready to take whatever steps are necessary.