Transcript

Check against delivery

Introduction

Thank you to CommsDay and the Communications Alliance for the opportunity to speak to you this afternoon.

As evidenced by the presence in this room today, and not surprisingly, the NBN is still of great interest.

Despite differing views on what the NBN should look like, there is bipartisan support for a national broadband network capable of serving the majority of Australians.

We are, therefore, in the midst of one of the biggest changes our society will experience in information and communications technologies.

Importantly, we also have bipartisan support for structural reform of the telecommunications industry. This is a significant consensus that has come about 20 years after the introduction of the competition and industry reforms in the early 1990s.

At that time, the different approaches to structural reform were central to the policy debate. Of course, the difference on that occasion was that the argument for structural separation lost out. 

I still carry some of the bruises from that time.

There is, of course, now debate surrounding the different technology choices. The ACCC is agnostic regarding technology decisions for the NBN; many technologies are capable of providing appropriate speed, reliability and upgradeability. Ultimately, the choice of technology should be about efficiency and is one for the policy makers, not the regulator.

The ACCC’s role in considering issues associated with market structure and implementation has, and will continue to be, focused on promoting competitive and efficient markets, rather than the technology itself.

Today I will be providing:

  • Some comments on infrastructure based competition.
  • Some insights into how the NBN can be expected to change the competition and regulatory landscape.
  • And perspectives on the ACCC’s future role in regulation in the evolving policy environment.

Infrastructure based competition

In addition to the usual considerations regarding the regulation of monopolies, we are moving into another phase of NBN policy. One important issue for the ACCC will be the role of efficient infrastructure based competition in this new environment.

The Government has indicated its intention to remove the current legislative provisions on super-fast networks. This raises issues that may be of importance to the coming cost benefit review and review of regulation.

The ACCC recognises that the task of balancing the objectives of promoting infrastructure based competition and delivering broadly equivalent services to the majority of Australians is complex.

The ACCC’s long standing position has been to encourage efficient infrastructure based competition.

As both the competition and economic utility regulator, the ACCC understands the benefits – in principle and in practice – that competition delivers to both consumers and the economy as a whole.

This view, however, comes with the important caveat, that where a high level of natural monopoly characteristics exist in a market, by definition, it will not be efficient to duplicate infrastructure.

Achieving efficient infrastructure based competition involves the complex task of determining what is efficient. Determining efficiency involves judgments being made, and there is not always one answer to these questions. The ACCC has had to make some difficult judgments on these issues in a variety of regulatory processes.

As you would all be aware, the ACCC’s past advice in relation to the Points of Interconnection for the NBN has been the subject of intense debate.

Another aspect of policy with clear links to competition is the process for achieving structural reform. The existing approach to implementing the structural separation of Telstra is through a progressive migration of copper based services to the NBN. The mechanisms for achieving this are linked with the Telstra/NBN Co agreements, and the provisions of Telstra’s Structural Separation Undertaking (SSU) and Migration Plan. While the new policy may alter these arrangements, it will be important for the complex arrangements to remain consistent with the intended structural separation outcomes.

How NBN will change the competition and regulatory landscape

With the advent of the NBN, we are looking towards a new regulatory landscape, with new issues for market participants and the ACCC to deal with.

I have previously spoken of the differences between regulating a vertically integrated operator and a wholesale only network operator. In many ways, the task of regulating the NBN is more straightforward than regulating Telstra’s copper wire services. Unlike regulation of Telstra, where regulation was required to address Telstra’s incentive to favour its own retail arm over its wholesale customers, the NBN is wholesale only, so regulation should be less complicated.

That said, the NBN will still be a monopoly, with the usual incentives a monopoly has to charge excessive prices or offer inadequate service quality. These incentives are at the heart of the rationale for economic regulation in all of the sectors in which the ACCC has a role.

As the migration from the old to the new network occurs, the regulatory impost on Telstra will largely fall away. This is a major change in both the structural reform of the industry, but also in the focus of economic regulation and the ACCC’s role.

While the ACCC is looking ahead to the future regulatory environment, we are cognisant of issues that may arise in the transition period.

Ensuring competition and efficiency continue to be promoted, and the interests of end-users are protected during this transitional period, is of the upmost importance and will be central to the settings achieved in our Fixed Services and DTCS reviews.

Beyond the transition from Telstra to the NBN, the regulatory landscape may be further altered by the advent of new services over the NBN.

For example, the potential for NBN services to be used for backhaul to mobile base-stations to promote further competition in mobile services has recently been raised. I note the recent announcement of a trial NBN fibre access service to base stations.

ACCC’s future role in regulation

Lastly, I wanted to touch on the ACCC’s future role in the regulation of the NBN and the sector more broadly.

As the multi-sector economic utility regulator, the ACCC has broad experience in applying the economic principles common to regulation across a variety of sectors. That we are able to use the experiences of regulation in one sector and adapt it to another sector is an advantage which is realised in our day-to-day work.

One of the objectives the ACCC set itself for the last financial year was to invigorate debate on the effective regulation of monopoly infrastructure. The consultation processes on the NBN Special Access Undertaking have certainly added lively contributions to this debate.

The SAU will form a key part of the framework that governs the price and other terms upon which NBN Co will supply services to telecommunications companies. As most of you know, this is expected to be a long-term framework that sets in place principles for the regulation of the NBN until 2040.

The ACCC wants the SAU to deliver a framework for the regulation of NBN Co services that allows for vigorous retail competition while providing sufficient certainty to NBN Co that it will be able to recover the prudent costs of its investment, subject to demand for its services meeting expectations. The ACCC’s view is that the SAU, if varied as we propose, will establish a robust framework for the effective regulation of the NBN.

While the new NBN policy may eventually necessitate amendments to the SAU, it is our view that the SAU framework is sufficiently flexible to accommodate the policy changes foreshadowed by the new Government. Importantly, most of the commitments in the SAU are technologically neutral and will apply even with a significant change in the network.

In addition, if NBN Co wishes to vary the undertaking in the future in light of any directions from the Government, these can be accommodated through the variation process, or, with sufficient notice, by withdrawal and submission of a new undertaking.

Leaving aside the potential for future variations, the ACCC will continue to support the principles for regulation that are currently encapsulated in the SAU (subject to our proposed amendments). These include:

  • long-term, binding price caps to ensure that consumers will not be subject to unreasonable price rises or exposed to inefficient expenditure by NBN Co
  • an overall revenue cap and prudency measures, to provide sufficient certainty that NBN Co will be able to recover the prudent costs of its investment, and
  • price review mechanisms to ensure that individual product prices remain reasonable over time, in particular the CVC charges which are sensitive to the expected increases in data-usage by consumers.

As to the status of the current SAU, following the extensive consultation on the most recent SAU, the ACCC provided NBN Co with a notice to vary in October. We expect to hear from NBN shortly.

Lastly, in addition to effectively regulating prices, it is also critical to ensure that NBN Co, like any other bottleneck infrastructure operator, delivers on performance quality.

In the coming years the NBN will likely be the only fixed broadband network servicing many areas. An important objective for the ACCC’s is to provide some visibility over the performance of NBN Co’s wholesale access services.

Thank you for your time today.