Gov’t vs ACCC: The NBN cold war turns hot

The government’s efforts to strong-arm the Australian Competition and Consumer Commission (ACCC) to adopt a favourable position on NBN Co’s wholesale prices, business market competition and spectrum allocation have been unsuccessful, which has led government to escalate the pressure by issuing a Statement of Expectations (SoE) to the ACCC.

Let there be no mistake, the government cannot directly interfere with the ACCC as it is an “independent Commonwealth statutory body whose role is to enforce the Competition and Consumer Act 2010 and a range of additional legislation, promoting competition, fair trading and regulating national infrastructure for the benefit of all Australians.”

What this means is that the government’s SoE is nothing more than a mechanism to draw a response from the ACCC, known as a Statement of Intent, to the matters identified in the SoE.

The government has argued that “it is common practice for federal or state ministers to issue a Statement of Expectations to a regulator. Statements generally address matters such as transparency, accountability and the nature of the relationship between the regulator, government and regulated entities.”

The ACCC could respond in kind by reciting back the legislation that it is operating under and practices that it is undertaking to ensure that it complies with the legislation and the requirements implied in the legislation for transparency and accountability.

The ACCC has and continues to undertake a range of inquiries related to broadband and the operation of the telecommunications market. So why has the government issued an SoE to the ACCC?

It is because the NBN Co’s business model is broken.

This has occurred because the Government adopted a policy in 2013 that was always going to lead to failure. NBN Co is now a failed Government Business Enterprise, but the government is not willing to admit this.

The NBN rollout has now cost $57 billion and the rollout is yet to be completed.

Put simply, for what is being provided, the National Broadband Network (NBN) is unreliable, underperforming, and over-priced.

Consumers are not prepared to pay more to move to the higher speed connection tiers and this means that NBN Co is unlikely to meet financial targets in the foreseeable future. This is in keeping with NBN Co failing to meet financial and rollout targets every year since 2014, when the Government’s multi-technology mix policy commenced.

You would not know this if you looked at NBN Co’s Corporate Plan 2021 because it provides very little information of substance and a lot of marketing babble to hide what appears to be additional funding being used to provide outcomes that were promised to be delivered prior to 2019.

The crux of the matter is the Government has now become desperate to turn the lemon into a premium lemon in an effort to position the NBN for a quick sale after the next election.

This is likely to be achieved by forcing consumers to pay more to reflect, in the Governments words, “the costs of building the network and delivering a world-class broadband service.”

But as we know the Government is responsible for the cost blow outs and the NBN is anything but a “world-class broadband service.”

It is not inconceivable that NBN Co would, if permitted by the ACCC, cancel the 12/1 Mbps product, thereby forcing consumers looking for a low-cost NBN connection to pay for a 25/5 Mbps connection.

So why should consumers pay for the Government’s stuff up?

The ACCC chair Rod Sims, speaking at the Australian Financial Review National Infrastructure Summit said “to date NBN Co has only faced limited competition in new developments, or in those precincts where fibre to the basement networks can be economically feasible. The arrival of 5G networks will bring a new and very welcome source of competition with both mobile and fixed-location broadband connections.”

“This competition between fixed and wireless networks should certainly be encouraged. Rather than be guided by any sense of protecting the asset value of the NBN we need to promote efficient investment and product innovation and require NBN Co to be responsive to its various customer’s needs.”

Unfortunately, this does not align with what appears to be the government’s view that every effort should be made to optimise the value of the NBN in the time remaining before the next election so that it can be sold off in 2025.

And hopefully, from the government’s perspective, the effects of competition from 5G and smaller providers rolling out FTTP will not have substantially affected NBN Co’s revenues in the interim.

Mr Sims is alluding to the likelihood that competition from 5G is timely, and that this competition is likely to have positive outcomes for consumers, including on price, with NBN Co being forced to reduce prices to retain market share.

However, pricing is only one mechanism used to attract customers. Providing a quality product is another, but this is something that NBN Co is not able to provide and the release of the Corporate Plan 2021 shows that NBN Co has adopted an approach that is not going to substantively alter its trajectory in the years to 2024.

More than six years after NBN Co embarked on the multi-technology mix folly, it has failed to gain the ACCC’s agreement on a variation to the Special Access Undertaking (SAU) to incorporate all of the multi-technology mix technologies. There is good reason for this failure.

The variation proposed by NBN Co is deeply flawed and the ACCC would be wrong to accept it without substantial amendments. I have written previously about the variation proposed by NBN Co, its fiscal and technical failings and it is not unexpected that the stand-off would continue.

NBN Co’s proposed SAU variation is detrimental to service providers and end-users when compared with the existing SAU and the ACCC must take this into account.

NBN Co has proposed that it be permitted to use a cost model that is advantageous to NBN Co and this would ultimately push up prices charged to retail service providers and end-users and lower service standards.

The three reports released by the NBN Panel of Experts in 2014 have been extensively criticised and data used to justify the recommendations has been shown to be flawed.

The government believes that the ACCC “could have regard to the Vertigan Panel’s Recommendation 19 that the ACCC should use a ‘building block’ cost model.”

The ACCC is aware that NBN Co is now moving to offer consumers FTTP as an alternative to FTTN, so special consideration of a cost model that substantially alters the previous SAU is not warranted, introduces complexity and could hinder the shift from the multi-technology mix to an all fibre network.

It was the government’s decision to adopt the multi-technology mix and it is unreasonable that this decision should detrimentally affect service providers and consumers more than it already has.

The government understands NBN Co’s entry into the business broadband market is vital if NBN Co’s bottom line is to improve. But there has already been substantial opposition from existing business broadband providers to NBN Co entering the business broadband market, especially if this means there is a cross subsidy used to lower business broadband wholesale product pricing.

The government has failed to address the telecommunication industries concerns, instead it puts forward the opinion that the “ACCC should support new entry and competition in this market within the constraints established by the regulatory framework.”

Another avenue for the government to gain revenue, whilst responding to requests from mobile operators for more spectrum, is to attempt to alter the terms by which NBN Co was granted spectrum and how that spectrum could be used.

“Spectrum is a scarce and finite resource that is essential to the provision of services in downstream markets, so consideration of competition and consumer issues for spectrum allocations is particularly important. I expect the ACCC to provide advice on such issues when requested, and to take into account the communications policy objectives of the government when preparing advice on spectrum allocation issues.”

Policy objectives? Nope, it is all about 5G and revenue.

By altering how NBN Co can utilise the allocated spectrum, the government is putting consumers and business at risk of receiving an even worse fixed wireless outcome than what is currently provided by NBN Co.

It is evident that there has been considerable tension between the government and the ACCC for some time. Statements in the SoE highlight the extent of the tension and disagreements occurring behind the scenes.

The ACCC is not infallible, as has been shown by recent Court reversals. However, the ACCC has been working steadily and positively to address the many failings of the telecommunications market, albeit with a few missteps.

Many of the failings have been as a result of the government’s failed NBN policy rather than changes conditions caused by new entrants, new technologies or killer applications.

For the government to publicly express dissatisfaction with the ACCC, is a remarkable step, one that cannot be dismissed without question.

The government could, for example, have written to NBN Co and instructed NBN Co to put forward a variation to the SAU that responds to the response received from the ACCC to the previously rejected variation.

But no, the government is very much taking a combative approach with the ACCC and the Australian Government is wrong to adopt the Trumpian dystopia when it is the cause of the NBN mess.

The telecommunications industry needs to pay close attention to what is happening, and whilst the leading Telcos may have had disagreements with the ACCC (many in some cases) in the past, there is nothing but misery awaiting the industry and consumers if it does not grasp the potential for chaos if the ACCC rolls over.

It is time for the telecommunications industry to step up and to speak up.

Mark Gregory is an Associate Professor in the School of Engineering at RMIT University and is the Managing Editor of the Journal of Telecommunications and the Digital Economy

Do you know more? Contact James Riley via Email.