Stuart Kennedy
October 30, 2017

ACCC brings a stick to the NBN

TelcoLand

ACCC brings a stick to the NBN

Superhighway: So much traffic and not a lot of speed

The competition watchdog’s draft report into the country’s communications sector has lobbed into the middle of an NBN battlefield as the network engages in landmark price negotiations, and fights off widespread user discontent and a slew of negative media.

The 190-page long Australian Competition and Consumer Commission’s (ACCC) Communications Sector Market Study sees the competition regulator sharpening its claws and laying out its options, especially in relation to the NBN.

The NBN rollout has passed the halfway milestone and is causing all sorts of political damage to the shaky Turnbull government as unhappy punters voice their displeasure about getting on and using the new network.

The NBN – especially the large chunk of the network that is fibre to the node – is viewed by many as expensive, unreliable and prone to slowing to a crawl during peak times.

Says the ACCC draft report:

“We consider that competition for the supply of broadband services on the NBN may not be working as well as it could be for consumers in terms of encouraging take-up and use by delivering quality broadband services on the NBN.

“While we acknowledge that some of these issues may be transitional there are immediate and longer-term factors that could dampen future competition on the NBN, and consequently warrant further examination.

“Many consumers claim to be worse off on the NBN compared to their legacy broadband service with slow speeds and congestion, particularly in peak evening periods. There has also been wide-spread media coverage of NBN speed issues, with NBN Co acknowledging the problems and estimating 15 per cent of users are dissatisfied.

“Poor consumer experience may be the result of a number of factors including misaligned incentives of NBN Co and service providers, including efforts by both parties to avoid demand risk as much as possible.”

The finger pointing between NBN executives, retail service providers and Communications Minister Mitch Fifield has been comical.

NBN Co blames RSPs for not buying enough bandwidth to service peak usage demand, the RSPs blame NBN Co for unrealistic pricing, and the government blames Labor for setting up the NBN in the first place.

A crucial backdrop to the draft report is that NBN is in consultation with RSPs right now.

It is understood everything is on the table in these negotiations including melting down the current pricing regime where RSPs are charged an Access Virtual Circuit (AVC) charge per customer that identifies customer data within the NBN and a Connectivity Virtual Circuit (CVC) charge which determines the size of the pipe and therefore the network performance.

If an RSP doesn’t buy enough CVC, then network performance suffers. It is understood, NBN Co is considering doing away with the AVC/CVC system altogether.

The ACCC estimates these charges comprise about 70 per cent of a 25 Mbps download/5 Mbps upload $60 a month retail plan. 60 bucks a month is seen as the price limit most customers are prepared to bear.

In its proposed recommendation three, the ACCC gives itself some wriggle room around these deliberations and also promotes its big stick which is whether it signs off on variations to the Special Access Undertaking (SAU) which shapes the regulatory framework around prices.

“We strongly encourage NBN Co and service providers to continue to engage constructively to address issues raised about NBN wholesale access pricing within the existing regulatory framework,” the draft report says.

‘This is essential if there are to be improved outcomes for NBN Co, service providers and consumers. We have delayed our decision on varying NBN Co’s SAU in order to give NBN Co and service providers flexibility to continue their discussions in relation to pricing.”

“We will carefully examine any outcome of NBN Co’s current pricing consultation, including the need for consequential changes to NBN Co’s SAU or other regulatory response to promote positive outcomes for consumers and the market generally,” the ACCC says.

It also suggests the government should let NBN Co off the hook off full investment cost recovery through what it charges RSPs.

“We consider further work could be done by the ACCC and the Department of Communications and the Arts to examine this issue and in particular possible options that may provide NBN Co greater flexibility regarding its cost recovery objectives for example direct budget funding arrangements for non-commercial services, debt relief measures or an asset revaluation,” says the draft report.

The ACCC will consult on the draft report until December 8 and then release the final report in early 2018.

While the Competitive Carriers Coalition (CCC) is generally supportive of the ACCC draft report, describing it as “significant milestone in shaping appropriate future regulation” it would like to see the competition regulator help reform peering arrangements between network providers.

“It’s a bit disturbing to see that yet again there’s a problem with internet interconnections which is what we used to call peering,” says a CCC spokesperson.

“They first started to look at this in 1998, and here we are 20 years since people first started talking about this and the problem hasn’t been resolved.

“Structure matters. Making sure you have structural incentives in place is really the only way to deal with some of these deep, intractable problems.”

The report notes that while declining, transit prices are still significantly higher than overseas market.

Industry observer Mark Gregory was far more scathing of the ACCC draft report.

“The problem is the ACCC is prone to blunder and they do it continuously,” says Dr Gregory who is an Associate Professor in the School of Engineering at RMIT University.

“They take a very narrow view and it tends to lead to very complex and difficult outcomes. They fall down by not looking at the key issues,” Dr Gregory said.

“The underlying issue is that the NBN is uneconomic and it is anti-competitive for NBN Co to be making upfront and ongoing annual payments to Telstra for use of infrastructure that should have been transferred to NBN outright or conversely that Telstra should have been split in two.”

“We have a situation where the network is unbalanced because money is funnelling to Telstra,” he says.

The draft report notes Telstra, TPG Group, Optus and Vocus Group account for about 94 per cent of the NBN and Dr Gregory says this indicates market failure which the ACCC should address.

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