Wrapping the NBN in cotton wool

NBN Co may have been given legislative protection that is unsurpassed in the nation's history, but is it the biggest anti-competitive arrangement ever?

Advocates for competitive, fair and open markets have taken a sledgehammer to the anti-competitive shield surrounding the National Broadband Network (NBN). The company building the network, NBN Co, has been given legislative protection that is unsurpassed in Australian history, but is former Australian Competition and Consumer Commission (ACCC) boss Allan Fels’ claim that this is “the biggest anti-competitive arrangement ever in Australia, as far as I can see” accurate?

The government’s competition policy review has provided a forum for the NBN legislation to be put under the microscope and this is timely as the government considers legislative and regulatory amendments to enhance competitive growth in the telecommunications sector.

But what would have happened if NBN Co was not wrapped in a protective bubble -- and can the bubble now be burst without unwanted consequences?

Competition policy review

The government’s competition policy review, led by Professor Ian Harper, is a broad review of competition policy with key areas of focus that include whether the competition provisions of the Competition and Consumer Act 2010 (CCA) provide “efficient, competitive and durable outcomes, particularly in light of changes to the Australian economy in recent decades and its increased integration into global markets.”

Another key area of focus for the review panel is to “identify regulations and other impediments across the economy that restrict competition and reduce productivity, which are not in the broader public interest".

There can be little doubt that competition in the telecommunications sector will feature in the competition policy review report. But will the review panel be able to fully grapple with the technical and historical complexities of the telecommunications sector?

The problem with government reviews and audits

It’s an unfortunate aspect of government that commissioned reviews and audits are often carried out by panels consisting of lawyers, accountants and economists and all too often panels do not include scientists and engineers. And this could be why the telecommunications industry is in the mess that it is in today.

Since the 2013 election the government has commissioned a number of reviews and audits into the NBN but interestingly Turnbull has not commissioned a technical review. The 2008 technical review into access network infrastructure carried out by an expert panel that included Laureate Professor Rod Tucker, Professor Emeritus of Communications Reg Coutts and the then Treasury Secretary Dr Ken Henry, among others, recommended a fibre access network. Perhaps the current government is worried that another technical review may again point towards a full fibre-access network rollout.

Competition policy headaches

On July 4, Communications Minister Malcolm Turnbull made an extraordinary political attack on the Australian Competition and Consumer Commission (ACCC) and former chairman Graeme Samuel for advice given to the former government related to the NBN.

This politically motivated attack clouds the root causes for the current competition policy headaches that had their genesis in the Howard government’s 1997 partial privatisation of Telstra. Admitting to past mistakes is never easy but the current mess is a clear instance of gross political failure.

 In his submission to the government’s competition policy review, Professor Fels identifies three “problematic exemptions” to the Competition and Consumer Act 2010. One of the problematic exemptions identified by Fels is the NBN.

The biggest anti-competitive arrangement in Australian history?

Fels states that the NBN exemptions are “the biggest anti-competitive arrangement ever in Australia, as far as I can see".

But what Fels fails to identify is that anti-competitive legislation and regulations are not the totality of government influence over competition within a marketplace.

Privatisation of government assets, if carried out incorrectly, can have a detrimental effect on competition that is hard to correct. And it is with this in mind that the record should identify the biggest anti-competitive arrangement ever in Australian history as the privatisation of Telstra by the Howard government.

No amount of tinkering with legislation and regulations today will overcome the anti-competitive influence that Telstra possesses within the telecommunications sector.

Telstra and its management team are not to blame for the situation that they find themselves in and it would be wrong to expect Telstra to do anything other than to exploit the market power that it now holds.

And it is for this reason the government will find it difficult for NBN Co to become anything more than a Telstra reseller if it proceeds with the multi-technology mix (MTM) NBN 2.0.

Telstra’s implied protection

Submissions to the competition review appear to have failed to identify or even question the implied anti-competitive protection that Telstra receives from the 2011 NBN Co agreement. Telstra is, after all, a near monopoly provider of telecommunication infrastructure and facilities and the very nature of this position has led to a considerable number of court cases over the past two decades.

Anti-competitive protection afforded to NBN Co could provide Telstra relief from anti-competitive action because third parties including the ACCC may be unable to take action against Telstra’s provision of and receipt of payment for access to infrastructure, products and services that either form part of the 2011 NBN Co agreement or are closely associated with it.

Under normal circumstances, third parties including the ACCC would have the opportunity to scrutinise and challenge any agreement or contract if there was a belief that the agreement or contract was anti-competitive.

Telstra’s CEO David Thodey remarked recently that Telstra would not look to sell infrastructure or facilities to NBN Co as part of any renegotiated agreement and by making this statement Thodey has signalled to the government and industry that Telstra will further enhance its position as a near monopoly infrastructure and facilities provider when it leases the copper and the HFC network to NBN Co.

The prices paid by NBN Co to Telstra do not appear to be subject to challenge because of the NBN Co competition exemptions and this should be setting off alarm bells in telecommunication company board rooms around the nation.

What about Telstra’s mobile network?

To further highlight why NBN Co’s anti-competitive exemptions are not the “the biggest anti-competitive arrangement ever in Australia” it might be worth looking at the government “assistance” provided to Telstra to maintain its mobile network dominance.

Will the financial effects of the NBN Co exemptions ever come close to the many hundreds of millions given to Telstra over the past decades by Commonwealth and state governments to provide mobile coverage along road and rail corridors and in mobile coverage black spots such as regional and remote communities?

Just how much of Telstra’s mobile network has been built with public funds may never be known because of the political embarrassment but nevertheless it’s time for Telstra to disclose the amount of public funding it has received for mobile network infrastructure and backhaul and where it is located.

And we do not have to go back far in history to find examples of this anti-competitive arrangement.

On July 4, the Northern Territory government announced a $5.76 million gift to Telstra that will expand Telstra’s mobile network and internet coverage into 13 bush communities. Unsurprisingly there was no mention that Telstra would provide wholesale access to the infrastructure built with the grant.

No mention of Optus and Vodafone being given access to the mobile phone towers.

And the Northern Territory government’s announcement that Telstra would provide ADSL2 is also quite remarkable because taxpayers should wonder why NBN Co was not given the funds to rollout fixed wireless in the 13 bush communities and to make the fixed wireless towers available to Telstra, Optus and Vodafone to provide mobile coverage.

Time to start again

The telecommunications industry has several impediments to competition, and the NBN arrangement in the CCA must not be the sole focus of attention.

If the Coalition government fails to grasp the opportunity to address the reasons behind the NBN and simply decides to continue with the superficial attacks on organisations and people that supported the principal of the NBN and breaking Telstra’s near monopoly dominance then the telecommunications sector is doomed to another decade of chaos.

It is appropriate to give the final word on what is happening to Graeme Samuel who argues in an Australian Financial Review report that “the project [NBN] is far too important to be enmeshed in the political payback that is evident in some of the analysis so far".

“The NBN is . . . deserving of the most careful, analytical processes that government can bring to bear but it’s important those ­process be done objectively and not be overshadowed by the politics that have beleaguered this process from the beginning and appear to be ­continuing to do so.”

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