Aspects of the telecommunications market remained far from truly competitive, Australian Competition and Consumer Commission Chairman, Mr Graeme Samuel, told the Australian Council for Infrastructure Development in Sydney today.
"In short, the continuing dominance of Telstra over virtually all aspects of the industry continues to retard effective competition and industry initiatives to overcome this appear still to be concentrated in the central business districts", he said.
"Telstra owns two of the three major local access networks outside the CBDs or major cities, it owns the copper wire that connects virtually every household and business in Australia and it owns the largest cable network.
"Its major competitor Optus still relies heavily on Telstra for access to its customer base, and its attempt to challenge Telstra by rolling out its own cable was successfully stymied by Telstra chasing it with a rollout of its own cable up virtually every street Optus went into.
"Optus has had just 10 per cent take up by houses passed by its cable and it has now declared it will not be planning any further roll out.
"In short, there is little likelihood of Telstra's dominance being threatened in the short term, so the job of the ACCC is to work within this framework to promote competition and protect consumers.
"The most recent example of this was in the action we took against Telstra over the pricing of its broadband internet service. The Commission issued Telstra with a Competition Notice because Telstra’s wholesale customers were being prevented from, or hindered in, supplying broadband services to retail customers at prices that enabled them to compete with Telstra in the medium-long term.
"As the Commission still has reason to believe that Telstra is engaging in anti-competitive conduct of the kind described in the Notice, it has decided to keep the notice in force. Our analysis of Telstra’s revised wholesale pricing structure – announced following the issuing of the Competition Notice – suggests that the revised pricing structure still has significant limitations. The evidence also suggests that these limitations are likely to substantially hinder the ability of Telstra's wholesale customers to compete with Telstra BigPond at the retail level.
"Since 1997 various measures have been adopted to strengthen the access regime to improve its effectiveness and address the limitations identified above. These improvements, however, do not alter the underlying incentives for a dominant firm such as Telstra to delay access to competitors or discriminate in favour of its own services.
"In addition to Telstra's horizontal and vertical integration, its full ownership of the main pay TV distribution network and copper network, as well as its 50 per cent shareholding in Foxtel, also act to stifle competition, even in new and emerging markets.
"It not only diminishes opportunities for competition by actual and potential network competitors, it means Telstra's copper and cable networks don't even compete with each other, denying potential price and service benefits that such facilities-based competition could deliver to consumers.
"Telstra's partial ownership of Foxtel acts to deny competition in both directions. It restricts the supply of pay TV channels by Foxtel to other networks competing with Telstra and prevents other pay TV businesses or channel providers from gaining access to Telstra's network.
"Telstra's dominance in local access telecommunications markets and Foxtel's dominance in the pay TV market can act to reinforce each other.
"In view of the current industry structure, the ACCC believes further consideration should be given to the benefits and costs of Telstra being required to divest the cable network in full and divest its 50 per cent shareholding in Foxtel.
"Divestiture of the cable network would introduce a new infrastructure competitor into the market, establishing conditions for increased rivalry and innovation in the supply of a full range of telecommunications services. If Telstra was forced to divest its Foxtel shareholding, both Telstra and Foxtel are likely to have improved incentives to supply their respective services to competitors and Telstra would have a diminished ability to use its market power to leverage into converged markets.
"Issues surrounding the possibility of structural reform in the telecommunications sector have not been subject to a comprehensive assessment. However, given the scope of vertical and horizontal integration within the telecommunications sector, such an assessment is warranted.
"Any assessment would need to examine, among other things, the benefits of increased competition that would result from structural separation against the costs of lost economies of scope and implementation costs against the background of continued and rapid technological changes in these industries", he said.
A copy of the full speech is available at the ACCC website (see below).