MARK GREGORY
November 28, 2016

Telco reform an attack on the ACCC

Competition

Telco reform an attack on the ACCC

Market power: Reform of Part XIB will hamper the ACCC power to create a level playing field

The Turnbull Government’s threatening stance towards the Australian Competition and Consumer Commission (ACCC) has been ramped up with the announcement that plans to repeal the telecommunications-specific anti-competitive conduct laws in Part XIB of the Competition and the Consumer Act 2010 (CCA).

In a most ill-conceived act, the government aims to reduce the ACCC’s ability to regulate the telecommunications industry at a time when the telco market is in chaos, and the open and fair competition envisaged by telecommunications deregulation in the 1990s has not occurred.

The government’s reliance on the flawed Harper Review of competition policy, completed in March last year, highlights its bull at a gate approach to legislative reform.

In October last year, ACCC chairman Rod Sims called “for a return to the approach to regulation of monopoly infrastructure envisaged by the Hilmer Committee.”

The Hilmer Report (PDF), released in August 1993, outlined a need for a regulator such as the ACCC, with the legislative backing to be able to set prices after consultation with monopoly infrastructure operators, the public and the industry.

After a consultation on the repeal of Part XIB ending on 30 September 2016, the government has decided to ignore submissions made from the majority of telecommunications companies and sided with Telstra, which is facing the strong possibility that the ACCC will soon declare domestic mobile roaming.

Repeal of Part XIB significantly waters down the power of the ACCC to regulate the telecommunications industry, a point not lost on the government, the NBN Company and Telstra.

To what extent Telstra and more recently NBN Co have been able to put pressure on the government over Part XIB is unknown, but there should be no doubt that the repeal of Part XIB will not be to the broader telecommunication industry’s benefit.

The government’s proposed amendments to Section 46 in Part IV of the CCA are not likely to adequately address telecommunications related predatory pricing, competition notices, exemption orders and the potential for NBN Co and Telstra to take anti-competitive action.

Predatory pricing is the practice of supplying a product or service for a sustained period at a price that is less than the cost of supplying the product or service.

Competition notices apply only to the telecommunications industry. Under Part XIB of the CCA, the ACCC can issue a competition notice if a Carriage or Carriage Service Provider (C/CSP) engages in anti-competitive conduct there by order the C/CSP to cease the conduct and if the C/CSP fails to cease the conduct the ACCC or an affected C/CSP can commence legal action.

The Federal Court can award a penalty of $10 million, plus $1 million for every day the conduct continues, and if the conduct goes for more than 21 days, $31 million plus $3 million for each additional day.

Exemption orders can be made by the ACCC to competition outcomes affecting telecommunications products and services to achieve socially desirable policy outcomes.

Section 151BC(2) of the CCA outlines five categories of factors that the ACCC should take into account that encompass disadvantage, access, affordability, health, education, not-for-profits and charities, has the potential to reduce pollution and to contribute to technical innovation, or the development of new goods and services by Australian industry.

The telecommunications Universal Service Obligation (USO) could be affected by the removal of Part XIB because it is a telecommunications-specific national objective that requires the ACCC be provided with the regulatory authority to exempt the provision of the USO from broader competition policy.

Telstra has considerable form when it comes to anti-competitive behavior, and the ACCC has had to take action against it on a number of occasions.

Watering down the ACCC’s regulatory powers now would only enhance the opportunity for Telstra to act inappropriately at a time when the industry can least afford it.

The root cause for Telstra’s incumbent supremacy is the failure of successive governments to split Telstra into two companies, wholesale and retail.

Twenty years after the telecommunications deregulation occurred in the 1990s, we still have an incumbent with about 60 per cent of the fixed and mobile telephony market and about 50 per cent of the NBN wholesale market.

The rationale for the National Broadband Network (NBN) included a large portion of stubbornness by Telstra, and its willingness to take dubious action that it views will protect shareholder value.

After the failure of the Howard Government to convince Telstra to commence a FTTN rollout, the decision by the Rudd Government to introduce the NBN was seen to be an attempt to reduce Telstra’s market power whilst kick-starting open and fair competition in the access market.

One of the legislated building blocks of the NBN is the uniform national wholesale pricing regime.

How the government’s proposal to repeal Part XIB will affect this legislated requirement is uncertain at this time, but there can be no doubt that the Turnbull Government is working to undermine the uniform wholesale pricing regime, albeit indirectly in this case.

NBN Co CEO Bill Morrow told Senate Estimates recently that NBN Co is consulting on a new volume-based discount model that would be made available to individual wholesale access seekers based on the wholesale access seeker’s average data usage.

It appears that the hold-up on Mr Morrow’s volume-based discount model is the need to find a way around the legislated uniform national wholesale pricing regime.

It is possible that the government is working closely with Telstra and NBN Co on a plan of action that will undermine the ACCC, increase NBN Co’s ability to get around the uniform national wholesale pricing regime and set the scene for a potential takeover of key parts of the NBN by Telstra.

For government this is the easy way forward. A more forward thinking government that wanted to enhance open and fair competition would force Telstra to split into two companies, as the New Zealand Government did with Telecom NZ in 2012, forming Chorus (wholesale) and Spark (retail and mobile).

With just over five years until NBN Co can be sold off, either as a single or disaggregated entity, now is not the time to be tinkering with telecommunications competition policy.

The Senate needs to stand up and vote down any attempt by this Government to undermine the ACCC and insist that the Government fix the underlying anti-competitive market related problems besetting the telecommunications industry.

Dr Mark Gregory is a Senior Lecturer in the School of Engineering at RMIT University

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