Addressing the Australian Communications Consumer Action Network Conference in Sydney, Chairman Rod Sims discusses aspects of the ACCC's work which affects communications affordability. Mr Sims explains the ACCC’s focus on pursuing the long-term interests of end-users in regulating communications markets and outlines recent and current mergers reviews. He also puts forward a case for a broadband performance and monitoring program to provide transparency about the quality of services offered to consumers.
Check against delivery
Thank you to ACCAN and Teresa [Corbin] for inviting me to speak here today. The ACCC and ACCAN stay in close contact and have many aligned objectives.
The theme of the conference is one close to our hearts at the ACCC. Although the term ‘affordability’ is not always prominent in the language we use, the concept is implicit in almost all of our work.
Of course, in communications, the ACCC has a diverse range of functions ranging from consumer protection to competition enforcement to economic regulation. We also have a role in assessing mergers and other conduct in the sector as part of our broader role.
Central to these functions is the objective of ‘making markets work’. Efficiently functioning markets are the best way to deliver products and services to consumers at competitive prices.
Today I will talk about aspects of our work that affect communications affordability.
First, I will outline our roles in promoting competition in communications markets and infrastructure-based competition in particular. I will also talk about our role in assessing mergers which is important for affordability due to the potential long-term impacts on market structures.
Secondly, I will cover some enforcement work we have done in communications, including our involvement in the review of the Telecommunications Consumer Protections Industry Code.
Finally, I will make some comments directly on the subject of affordability.
Competition in communications markets
Our role in regulating communications markets focuses on pursuing the ‘long-term interests of end-users’. This has two main parts.
First is the promotion of competition. Competition between firms leads to lower prices, improves the quality of products and services and drives innovation.
In communications markets the ‘gold standard’ is infrastructure-based competition. Infrastructure-based competition is essentially networks being built to provide services in competition with one another. Where this is efficient – often in highly populated areas – it leads to the best outcomes in terms of prices and quality of services for consumers.
Since the industry was opened to competition in the 1990s, we have seen dramatic reductions in the price of telecommunications services, significant infrastructure investment to improve the quality and coverage of services and technological innovation.
Since 1997−98, the average real price of fixed and mobile voice services have fallen by around 50 per cent. Broadband customers are benefiting from larger data allowances, faster speeds and lower prices. The effective price per gigabyte (GB) has fallen from approximately $30/GB in 2007 to less than $1/GB today.
As we head into the NBN world the ACCC is focused on ensuring competition develops effectively. I am on the record as an advocate for NBN Co putting in place measures that will facilitate future infrastructure-based competition. In particular, NBN Co should put in place arrangements that provide for the future separation of NBN Co at an appropriate time into separate businesses that can compete with one another, for example based on delivery technology.
The second element in our pursuit of the ‘long-term interests of end-users’ is efficient use of and investment in infrastructure. This comes down to how we regulate certain communications services and in particular how we set access prices for regulated services.
On the one hand we try to set access prices in a way that encourages an efficient amount of use of a particular service by customers. A price too high will deter efficient use; in some cases this comes down to a case of affordability.
On the other hand we try to set access prices in a way that encourages infrastructure providers to invest in infrastructure. The prices that network owners can receive for services over their infrastructure dictates the returns on their investment. Prices too low will deter future investment and ultimately will be to the detriment of efficiency and the interests of customers.
Access regulation has a central role in promoting competition in telecommunications
markets, both at the infrastructure and retail levels. In particular, opening access to Telstra’s fixed line services, including the unbundling of Telstra’s local loop, has been pivotal for the development of competition in retail voice and broadband markets.
The ACCC’s approach to regulated pricing has assisted the take-up of the unconditioned local loop service, investment in digital subscriber line access multiplexers (DSLAMs) by retail service providers and innovation by access seekers, such as the launch of ADSL2+ services.
Equally the regulation of the transmission network plays an important role in promoting competition in the telecommunication market particularly in regional areas where there is less competition.
While there is a lot of competition on transmission routes between capital cities and in the metropolitan areas, we do regulate transmission on routes where there insufficient competition. This regulation mainly applies to transmission routes in regional areas and to some of the outer metropolitan areas.
The ACCC is due to release its draft decision setting access prices for these regulated routes in the next couple of days. The ACCC has consulted closely with industry in its development of its draft decision and the benchmarking model used to price regulate routes. This decision will see prices for regulated routes follow the downward trends we have seen on more competitive routes, but further details on the draft decision will be announced shortly.
While both the fixed line services inquiry and the transmission access inquiry are continuing, you may have seen our recent decision to set prices for the mobile termination access service. We have set prices for voice termination at 1.7 cents per minute (this is down from 3.6 cents per minute) and we have priced SMS termination for the first time at 0.03 cents per SMS. While these rates are for wholesale services, we expect the reductions to be passed on to consumers through lower call or SMS rates or through more inclusions in plans.
Affordability was a key consideration in our decision to regulate SMS termination, as we had observed that the majority of SMS offers available to low spend consumers were priced well above the cost of providing the service.
TPG / iINet
Many of you will be aware of the ACCC’s recent decision on the acquisition by TPG of iiNet. The ACCC cleared the acquisition after closely scrutinising the competition effects in the fixed-line broadband market. We also looked at its impact on the wholesale transmission market, otherwise known as backhaul.
With the acquisition, the number of major suppliers in the fixed broadband market will reduce from five to four. TPG will be the second largest supplier with a market share of 27 per cent, behind Telstra (41 per cent) and ahead of Optus (14 per cent).
The question is where does the ACCC draw the line? Should it have drawn a line in the sand with respect to the TPG/iiNet acquisition, or will it be the next transaction? The answer is not black and white. There are shades of grey, but we are now extremely close to the line as things stand today.
In the TPG acquisition, the ACCC concluded that the removal of iiNet as an independent competitor would lessen competition in the relevant markets, but not substantially, which is the test to breach the competition law.
We took comfort that TPG would continue to face three major competitors after the acquisition. Clearly, we would have no such comfort in the case of any subsequent proposed acquisition involving any two of Telstra, Optus, TPG or M2, as things stand.
Maintaining a competitive backhaul market which includes non-vertically integrated suppliers of wholesale transmission services, such as Nextgen, is also important for fostering competition at the retail level. Independent suppliers have the incentive to encourage entry and expansion by smaller players who, unlike Telstra, Optus, and TPG, have little or no transmission infrastructure of their own.
Media sector issues
In the media industry, technological developments have given consumers more options for how and when they view audio-visual content. This has prompted significant structural change in the industry.
This year has seen huge growth in subscription video on demand services. These services offer a range of entertainment options at much lower monthly subscription fees than traditional pay TV subscriptions.
Netflix has reportedly gained 1.6 million active users since its introduction in March, with around 900,000 estimated to be paying subscribers.
This year Nine and Fairfax also launched their own subscription video on demand service, Stan, and Seven and Foxtel launched Presto.
Consumers can also download content, such as TV shows and movies, on a pay-per-view basis or to own outright. This can be done on computers, smart TVs, games consoles and platforms such as the Apple TV.
Traditional content providers have made content available over digital platforms by launching apps for catch-up services, such as the ABC’s iView, Ten’s Tenplay and Fox Sports’ app for the Apple TV platform.
The result is that traditional broadcasters, both free-to-air and pay TV, are offering a ‘blend’ of linear and on-demand content distribution to retain viewers as consumers’ viewing patterns change.
There are also signs that the traditional free-to-air and pay TV broadcasters are increasingly focussing on content that viewers typically prefer to watch live, such as sports, news and reality TV—so-called ‘water cooler programs’ or ‘appointment viewing’—to maintain audiences.
It is in this context that the ACCC is considering the likely competition impacts of the proposed suite of acquisitions between Foxtel, Ten and Foxtel’s digital advertising agency MCN, that were announced in mid-June.
The proposed acquisitions comprise three transactions:
- an investment by Foxtel of $77 million in Ten as part of a broader equity raising, which will result in Foxtel acquiring up to 15 per cent of Ten
- the acquisition by Ten of a 24.99 per cent stake in MCN, and
- an option for Ten to acquire 10 per cent of Presto, a subscription video on demand service jointly owned by Seven and Foxtel.
The Multi Channel Network, known as MCN, is an advertising business currently owned 75 per cent by Foxtel and 25 per cent by Fox Sports. It sells advertising opportunities for suppliers of channels on the Foxtel platform and on other subscription platforms, including Fetch TV. It also sells on-line advertising space for Telstra Media.
The proposed arrangements would see MCN enter the market for free-to-air advertising.
These transactions are subject to approval by the ACCC.
We are conducting extensive market inquiries to hear a range of views on the proposed acquisitions, given their scope and the potential inter-relationships between them.
We are focussing on three main questions in our inquiries.
First, will Foxtel’s tie-up with Ten substantially lessen competition for sporting rights?
Sports programming is increasingly important to both the free-to-air and subscription television business models due to its popularity with viewers.
In 2014, five of the top ten highest rating programs on free-to-air TV primary channels were sport or sport related and all of the top 20 highest rating programs on subscription television were sport.
We are assessing, for example, whether a tie-up with Ten will result in Foxtel having an incentive to partner with Ten in preference to other free-to-air networks in bidding for sporting rights, and whether that would result in the most popular sporting matches being shown live exclusively on Foxtel.
Second, will Foxtel’s tie-up with Ten substantially lessen competition for other, non-sport content and result in popular TV shows and movies being available on first release on Foxtel rather than on free-to-air TV?
We are, for example, seeking views on whether Foxtel’s acquisition of a stake in Ten would result in Foxtel, Ten and Presto partnering to purchase the full range of pay TV, free-to-air and digital rights to compelling content. If so, would this reduce the ability of other free-to-air and subscription video on demand providers to compete because they would have fewer opportunities to bid for individual platform rights?
Third, will Ten’s acquisition of a stake in MCN substantially lessen competition in the supply of advertising opportunities?
A relevant factor in considering this question is whether MCN would be likely to offer advertising on a bundled basis across the Foxtel, Ten, Presto and Telstra platforms. We are seeking views on whether media buyers and advertisers have sufficient leverage in negotiating advertising deals to resist any attempt by MCN to require the purchase of a bundled advertising arrangement.
In answering these three questions, a key issue will be looking at the extent to which Foxtel, or related parties of Foxtel, will have the ability to influence and control the operations of Ten in the event that the proposed acquisitions proceed.
These are obviously complex issues. We expect to make a decision on 10 September on whether we have any competition concerns about the proposed acquisitions and whether we need to consult more extensively to ensure we have enough information about how the proposed acquisitions will change the competitive landscape in the media industry.
Communications compliance and enforcement
Our enforcement and compliance work is largely to ensure truth in advertising to assist both consumers, and competition.
Representations about waterproof mobile phones are an area where manufacturers and retailers can improve compliance. The ACCC and the Telecommunications Industry Ombudsman (TIO) received a number of complaints that relate to mobile phones that have been advertised as ‘waterproof’ or ‘water resistant’.
Some of you may have seen representations by some phone manufacturers or retailers that a mobile phone handset is waterproof or water resistant. Some include pictures of phones being used in or around pools.
Consumers have complained that after using their phone in or near water, their phone no longer worked.
While retailers have pointed to small print which states what ‘waterproof’ or ‘water resistant’ means – and more importantly, what it doesn’t mean - we are concerned that these qualifications were not very clear.
We are also concerned that consumers may have been denied their rights under the consumer guarantees of the Australian Consumer Law (ACL) after their device stopped working because of water related damage.
We have put those companies on notice of our concerns and will be watching to make sure any future representations that are made about waterproof phones are accurate
In March this year, iiNet Limited paid penalties of $204,000 after we issued two infringement notices concerning advertisements for iiNet’s Naked Broadband 250GB Plan. We issued the infringement notices because we had reasonable grounds to believe that iiNet’s advertisements contravened the ACL by failing to prominently state the total minimum price of the service.
In December last year, Telstra Corporation Ltd paid a penalty of $102 000 after the ACCC issued an infringement notice about its iPhone 6 advertisement. We considered that Telstra’s advertisement misrepresented to consumers the price of the phone and phone plan bundle.
These actions are important for two reasons. Clear and accurate advertising allows consumers to make informed purchasing decisions. Clear advertising also improves competition by giving businesses the opportunity to compete fairly.
About this time last year, the Federal Court made declarations, imposed injunctions and ordered Zen Telecom to pay $225,000 in pecuniary penalties. The Court found that Zen Telecom engaged in misleading conduct and made false and misleading representations during telemarketing calls. Zen represented that it was acting on behalf of Telstra when did not have any affiliation or connection to Telstra. The Court also found that Zen Telecom had breached the unsolicited consumer agreement provisions of the ACL.
The ACCC has been contributing to Communications Alliance’s review of the Code since late last year.
The ACCC was initially disappointed by the extent of the proposed changes to the Code. In particular, the ACCC was concerned about proposals to remove provisions around advertising, selling practices and unfair contract terms. The ACCC has since been working closely with Communications Alliance and the Australian Communications and Media Authority (ACMA) to ensure that these important aspects of the Code are retained.
The TCP Code was significantly overhauled in 2012 after extensive industry and consumer consultation. ACCAN had a significant role in that review.
One of the reasons for the extensive revisions to the TCP Code in 2012 was to address the high level of complaints and poor standards in the telecommunications industry. Since the introduction of the strengthened TCP Code in 2012, there has been a marked decrease in consumer complaints to the Telecommunications Industry Ombudsman (TIO) and an observable improvement in the way telecommunications offers are communicated in the marketplace.
In the ACCC’s view the TCP Code is an essential component of the consumer protection framework in the telecommunications sector. We are pleased that the revised TCP Code will continue to include important consumer protection provisions.
Some comments on affordability
As I remarked earlier, the ACCC’s role in driving affordability is to help make markets work and to drive economic efficiency.
The data compiled by the ACCC showing dramatic reductions in the price of telecommunications services is only part of the affordability equation. The other side is income.
For example, according to ABS data, the proportion of households with internet access differs markedly between the lower income quintile and the highest. In 2012-13, 96% of households in the highest quintile had internet access while only 59% of households in the lowest quintile did.
While we might expect this discrepancy to narrow over time as prices continue to fall and with the rollout of the NBN, another factor in affordability is the nature of the services that consumers use.
It was not that long ago that a fixed telephone line was the only ‘essential’ part of communications services for the vast majority of consumers. Of course, mobile telephony use has exploded since then, with 25 million mobile connections in Australia currently, 2.5 times the number of fixed line connections. A mobile phone would now be considered essential by almost all consumers. Even smartphones are closing in on that status with 64% of Australians now using one.
Fixed line telephone connections are falling significantly, with over 800,000 home phones abandoned in the past year and one in five people not re-connecting their fixed line phone when they move house.
So now nearly a third of Australians have only a mobile phone with no fixed line, and 12 per cent of Australians use mobile-only internet with no fixed line internet service.
With the rollout of the NBN, broadband will become available to all Australians and will be considered essential much in the same way as the home telephone previously.
As consumer take-up of faster internet access increases, we are seeing the emergence of new services such as video streaming. As I mentioned earlier, Netflix is closing in on one million paying subscribers after launching in Australia in March. While this rapid growth is staggering, nobody is suggesting Netflix is an essential communications service.
This is the challenge we face in assessing affordability: the change in the mix of services that consumers need or want is rapidly evolving. The picture on affordability is not always clear. The overall outcome for consumers cannot be summed up in one number or one description. We observe: falling prices for established services; improvements in quality such as larger download caps and faster speeds; and the frequent emergence of new services.
The ACCC is acutely aware of the challenge in keeping on top of these developments.
It is notable that there is a lack of available data on affordability of communications services in Australia, particularly when contrasted with the energy sector where there has been a focus on issues such as ‘energy poverty’. Fixing this should be a priority.
The current environment is focused on red-tape reduction and reducing burden on business by improving the way we collect and publish data. But, at the same time, businesses, policy-makers and consumers demand up-to-date, accurate and relevant data.
We are working with our regulator counterparts, the ABS and the Department of Communications to remedy this and to strike an appropriate balance.
In addition, since late 2013, the ACCC has consulted on the possible introduction of a fixed broadband performance monitoring and reporting program in Australia. We have looked at the technical and commercial aspects of such a program and anticipate this work will be published in the near future.
A broadband performance and monitoring program would promote competition and consumer outcomes by providing transparency over the quality of broadband services that are on offer to consumers. Consumers need this information to help them select the most appropriate service for their needs and to confirm they are likely to be getting the service for which they are paying.
Competition in the retail fixed broadband market in Australia is limited by an asymmetry of information between RSPs and consumers on service performance. This asymmetry of information also exists between RSPs, who may have information about the performance of their own networks, but not their competitors’ networks – which prevents them from effectively competing on service quality, not just price.
Broadband monitoring programs have been established in the United Kingdom (2008), United States of America (2010), New Zealand (2010) and Singapore (2011), with Canada poised to commence reporting on its program in 2016. While the particular models adopted by each country differ, they all share common aims of improving the transparency of information for consumers and encouraging performance-based competition for broadband services. This is an aim which the ACCC also supports
Thank you for your time today.
 ABS, 8146.0, Household Use of Information Technology, Australia, 2012-13
 ACCC Telecommunications Reports 2013-14
 Roy Morgan, Shutter island: a snapshot of the 4.3 million Australians now sharing photos online, 3 Feb 2015
 Roy Morgan,
 ACMA, Australians get mobile, 9 June 2015