ACCC homeConsumers continue to reap benefits from competition in telecommunications
Attn: Consumer, Telecommunication writers
Consumers continue to reap benefits from competition in telecommunications
Australian consumers continue to reap the benefits from competition in telecommunications, according to two reports issued today by the Australian Competition and Consumer Commission.
"Overall average prices paid by consumers fell by 6.5 per cent in real terms," ACCC Chairman, Mr Graeme Samuel, said. "Growing investment in infrastructure is also providing consumers with better quality services. Overall investment in communications rose 9.5 per cent in 2005–06 to $6.9 billion.
"These reports show that consumers are the winners in terms of lower prices and better quality services when there is competitive pressure between providers."
The report on competitive safeguards showed that providers invested heavily in both 3G mobile networks and broadband infrastructure.
"The benefit of competitive investment was demonstrated with a number of carriers launching higher-speed ADSL2+ services," he said.
Mr Samuel noted that competition in the industry was still to some degree underpinned by regulation.
"Any unforeseen changes to the price and availability of access services such as the unconditioned local loop service (ULLS) could materially alter the state of competition. This would be to the detriment of consumers.
"Investment by competing carriers also remains at risk from prospective fibre-to-the-node network upgrades."
Part XIB of the Trade Practices Act 1974 requires the ACCC to provide to the Minister for Communications, Information Technology and the Arts annual reports on:
the competitive safeguards within the Australian telecommunications industry and
changes in the prices paid by consumers for telecommunications services.
Telecommunications competitive safeguards for 2005–06
This report report considers the competitive developments that occurred in the telecommunications industry as well as an overview of regulatory activities.
2005–06 was a year of noteworthy developments in the telecommunications industry. Users benefited from significant investments by numerous competing carriers in:
3G mobile networks, and
broadband enabling digital subscriber line access multiplexers (DSLAMs) installed in local telephone exchanges.
The total size of the communications industry continued to grow in 2005-06. Investment in communications grew from $6.3 billion in 2004-05 to $6.9 billion in 2005-06.
2005-06 was also characterised by robust debate about the current regulatory regime and its application to investments in infrastructure upgrades such as proposed fibre-to-the-node (FTTN) networks.
During the period an increasing number of carriers took advantage of the unconditioned local loop service (ULLS) and line sharing service (LSS) to deploy their own DSLAM infrastructure for the supply of telecommunications services. These commitments have underpinned further investments by other carriers in competing backhaul infrastructure.
The benefit of carriers investing in their own facilities was demonstrated with a number of carriers gaining a competitive advantage in broadband services through the early launch of ADSL2+ services offering higher transmission speeds. In line with this advantage, the number of ULLS and LSS services in operation grew by approximately 73 per cent in the nine months to December 2006. Telstra responded in late 2006 by matching its ADSL2+ competitors, however only in those regions in which its competitors had already invested in their own infrastructure.
At the same time, prices for fixed-line voice services fell, by around 6.6 per cent in real terms during 2005-06.
While there has been improvements in service quality and price competition as a result of these substantial and rapid increases in investment in infrastructure, competition for the delivery of services to end users remains fragile. Access seekers remain reliant on Telstra's ULLS and LSS services, and thus are exposed to substantial risks of unforeseen changes to the price and non-price terms and conditions of access which may harm their ability to access Telstra’s network in an equivalent manner to Telstra. Furthermore, competitors are also exposed to significant risks arising from the prospective roll-out of an FTTN network upgrade.
Fibre networks can take various forms, including fibre-to-the-premises (FTTP) and FTTN. Fibre deployments would be a gain for consumers in terms of higher data speeds, assuming services are provided at appropriate prices.
FTTP provides a new end-to-end fibre network to the customer's premises, bypassing the existing copper network. By contrast, FTTN upgrades the copper network, providing fibre up to a local street-corner node but still using copper from the node to the premises. Research done by Ovum for the ACCC indicates that FTTH plans tend to emerge in countries such as the United States with strong infrastructure competition between telephone and cable television companies, or where there have been government subsidies such as in Sweden. FTTN plans are less common and have only been proposed to some extent in countries such as the Germany and Australia, all which rely on the ULL access for broadband competition.
Telstra announced in November 2005 that it was exploring an FTTN upgrade to its network in metropolitan areas. In March 2006, Telstra began discussions with the ACCC over mechanisms for enabling competitors to access the proposed network and for Telstra to receive an appropriate return on investment. Telstra withdrew the proposal in August 2006 without lodging a formal access undertaking.
Telstra has argued that its proposed FTTN upgrade is required to improve the quality of services available to end users. However, it would have a profound effect on competition, stranding competing investments in DSLAMs and backhaul infrastructure if it goes ahead.
A second proposal for an FTTN upgrade was later raised by a group of nine carriers. A central feature of this model is the separation of the network ownership and management from downstream retail service provision, with open network access on equivalent terms to all access seekers regardless of their ownership interests in the network. The G9 group continued to discuss the regulatory aspects of its proposal with the ACCC in early 2007.
The unresolved status of Telstra's proposed FTTN deployment, however, risks substantially inhibiting ongoing investments in competing DSLAMs and backhaul infrastructure for all carriers other than Telstra.
Another major development during the year was Telstra's rollout of its NextG (3G) mobile network, significantly improving the capacity to provide broadband services to mobile devices. The launch of the NextG network has prompted rival carriers to rollout or upgrade their own 3G infrastructure. For example, in early 2007 Optus announced it would extensively upgrade its own 3G network. For some applications mobile broadband provides an alternative to more established broadband technologies, albeit currently at prices significantly higher than fixed line alternatives.
The industry continued its transformation in 2005–06 with a further reduction in the number of fixed voice services in operation and revenues. At the same time the use of other services such as mobiles and VoIP increased.
A new strategy used by fixed line providers has been to offer users 'bucket' or 'capped' plans. This type of plan generally does not charge for calls unless a capped amount is exceeded. Over time it is likely that the increased take-up by consumers of such plans will have implications for the structure of retail price controls applied to fixed line voice services.
The move by fixed line operators to offer bucket plans follows their popularity in mobile services, where prices also fell significantly – around 6.5 per cent in real terms during 2005-06. The growth of these plans resulted in the ACCC reporting more significant price reductions in 2005–06 for post-paid mobile subscribers than pre-paid subscribers.
In terms of regulatory activity, 28 new telecommunications access disputes were brought before the ACCC in 2005–06 for arbitration under Part XIC of the Act. This is the highest number of disputes notified in a single year, and compares to a low of zero disputes being notified in 2002 and 2003. To the end of 2006, 82 access disputes had been notified to the ACCC since the legislation was introduced in 1997.
Telstra has been a participant in 74 of the disputes, mainly as an access provider, while Optus has been in 31.
Changes in prices paid for telecommunications services in Australia, 2005–06
This report documents trends and changes in the prices paid by consumers for telecommunications services.
Overall average real prices for telecommunications services fell by 6.5 per cent
Second year in a row of significant reduction, after several years of fairly stable pricing.
Average real prices paid for fixed-line services fell by 6.6 per cent
A favourable outcome, relative to the previous year's decline of 1.2 per cent
Average line rental prices fell by 2.4 per cent, after six years of increases
Average prices for fixed-to-mobile calls dropped by 10.5 per cent - with greater reductions in the past two years, likely reflecting the falling cost of inputs such as mobile termination charges.
Average real prices for mobile services declined by 6.5 per cent
