At the Commsday Congress in Melbourne, ACCC Chairman Rod Sims outlines the market study into the communications sector and the linked declaration inquiry into domestic mobile roaming. He also discusses the need for better broadband speed information, and the ACCC's focus on competitive broadband networks.
Check against delivery
Thanks very much for the chance to speak today, and to Grahame Lynch and Petroc Wilton and the team for bringing together such a fine array of speakers and topics here at the CommsDay Congress.
The evolution of a competitive market for telecommunications began around 25 years ago with the Government facilitating the entry of Optus into the market. I was personally very closely involved in all this; it seems like yesterday.
Prior to that, of course, we did not have a telecommunications market in any sense; the then Telecom, now Telstra, was a vertically integrated monopoly with no competitors allowed.
We are still on the journey to a fully competitive market, albeit well advanced.
Further, this industry continues to undergo extraordinary changes as we all know. Rapidly evolving technology, structural change, product innovation, and changing consumer preferences are all contributing factors.
While very exciting, and linked to the way the market started, this great wave of change also brings with it multiple regulatory and legislative lines of inquiry and so a significant degree of stress on the industry. And also a lot of work for the ACCC.
Consumer interest in communication services is stronger than ever. The release of the issues paper on our market study into the communications sector has sparked a strong consumer response, with the ACCC receiving over 1000 submissions via the ACCC’s consultation hub in the first week alone.
We are pleased consumers are taking the time to provide us with their views on how developments affect them.
Today I will use this opportunity to discuss:
- our market study of the communications sector, and the linked declaration inquiry into domestic mobile roaming
- the need for better broadband speed information, and
- our focus on competitive broadband networks.
Market study of the communications sector
The rapid developments in the telecommunications industry continue to open up opportunities for consumers and business, but they also pose challenges for the industry and the ACCC as the economic regulator of communications.
While the ACCC stays abreast of the changing environment to ensure our regulatory decisions are in the best interests of consumers, we occasionally need to take stock to identify emerging issues to ensure that our regulatory framework keeps pace with the rate of change.
This is why market studies are an important part of our toolkit and a complement to our business as usual activities. The ACCC is increasingly using market studies to improve our understanding of industry developments, identify competition issues and assess whether markets are working effectively.
For example, we have recently completed the East Coast Gas Inquiry, we are currently undertaking market studies of the cattle and beef markets and the new car retailing industry, and we will soon begin a study of the dairy sector.
In August this year we announced a new market study into the communications sector. The study will initially examine a wide range of issues in communications markets to ensure we and all others have a good grasp of the changing landscape.
A key outcome will be whether the current form and level of regulation is appropriate. Given the strides made towards a competitive market in particular, can regulation be streamlined or reduced?
On 5 September 2016, we released an issues paper, calling for comment on a range of matters that may affect competition, the efficient operation of markets and investment incentives in the communications sector over the next five years and beyond. The key themes we are seeking to explore are:
- the impact of changes in consumer trends and preferences on the provision of communication services
- the growth in demand for data, largely driven by OTT services, and the impact of this growth on network investment and data traffic management
- industry consolidation, the transition to the NBN and concerns about competition, pricing, and consumer expectations
- the increasing convergence of mobile and fixed-line networks
- availability and competition in the supply of intermediate inputs, including internet interconnection, access to dark fibre and domestic and international transmission, and
- the emergence of new technologies and delivery platforms.
In coming months, through consultation with industry participants and consumers, we will narrow the focus of the market study to the key issues that warrant detailed consideration.
In part, we have already been doing that. For example, we are making preliminary inquiries to examine the competitiveness and efficiency of the domestic IP interconnection arrangements as we keep hearing that it may be cheaper for some RSPs to trombone traffic across the Pacific than buy domestic transit products.
We have also recently considered the impact of industry consolidation and increasing vertical integration in the industry as part of our assessment of Vocus Communications’ proposed acquisition of Nextgen Networks Group. We closely scrutinised the vertical integration issues associated with the proposed acquisition, but in the end the market expressed very little concern over it. Small broadband providers said they were not generally reliant on acquisition of wholesale transmission services from Nextgen to be able to compete.
One issue that keeps getting raised from time to time is NBN pricing, particularly CVC charges. I think the concerns about CVC charges have been well made and are well known by all here. The other side of the argument, not often mentioned, is that the ACCC is required to consider the opportunity for NBN Co to recover its efficient costs and earn a modest return on investment.
CVC charges have again been raised in response to our consultation on the variation to the SAU. We will consider those submissions as part of our assessment of the SAU variation.
We have also sought views on CVC charges as part of the market study. What we are particularly interested in is how CVC charges are influencing the competitive conditions in downstream markets for NBN services. Some specific matters are NBN Co’s trial of dimension-based discounts for CVC, including a future move to RSP-based discounts, and our scope under the SAU to rebalance prices in a revenue-neutral manner.
During the market study we will consult with many stakeholders, including industry participants, industry groups and government agencies to ensure our findings are robust.
In making our findings from the market study we will:
- provide to you our view on how the changes in the industry are impacting on competition and efficiency in the provision of communication services and consumer outcomes
- reflect on the way or the extent to which we should regulate, and
- consider whether there are any policy issues for government.
With the communications sector being incredibly dynamic, the ACCC has a bias to waiting to make sure the market cannot address an issue before we consider intervention. However, it is a fine balance between giving markets sufficient time to work issues out, but not so much time that markets fail.
To help us get that balance right, I encourage you all to get involved, whether by providing a written submission, meeting with us or attending a public forum or roundtable. If you are unsure how you can best assist us in this process, I encourage you to engage directly with our market study team.
We are seeking submissions to the issues paper by 14 October 2016. At this stage, we are aiming to release draft findings for comment in mid-2017 before publishing a final report in late 2017.
Domestic mobile roaming inquiry
The ACCC considered whether to examine domestic mobile roaming as part of the market study, given the wide interest in this topic particularly in regional Australia. However, we decided that a declaration inquiry would provide greater certainty to the market, and sooner.
An important consideration was that if the communications market study identified mobile roaming as an issue that needed to be addressed, the ACCC would still be required by legislation to conduct a mobile roaming declaration inquiry.
With the NBN continuing to roll out and questions around mobile roaming continuing to be asked, we thought it preferable to address the question separately.
This is clearly a complex issue which is understandably attracting a lot of interest due to demands by consumers for access to reliable mobile coverage, and a choice in mobile provider, wherever they happen to live.
We have followed the debates among industry members in opinion pages and elsewhere since we announced our decision with interest. These discussions are similar to the debates we have had within the ACCC.
On the one hand, we understand that mobile coverage and choice of mobile service provider and competitively priced retail offers are important issues for consumers living and working in regional areas. We recognise that for consumers seeking coverage in some parts of Australia, they are extremely limited in the choices available to them.
On the other hand, the ACCC is well aware the mobile network operators have all made significant investments in their mobile networks. We also understand there are real economic challenges for investing in mobile networks in some areas of Australia, and we understand the importance of incentives for continued investment.
Telstra, in particular, argues strongly that it is only worth investing in regional Australia if only it can use its superior network, and so maintain its competitive advantage.
The last time we looked into this issue was in 2005. Since then, mobile services have become ubiquitous and demand for mobile data services has increased exponentially.
While all the mobile networks now cover the vast majority of the population, there is a massive difference in geographic coverage of each network. There has also been consolidation among mobile network operators, and roaming agreements between operators are now much more limited.
In this environment, and given the concerns of regional Australians, it is time to re-examine the need for regulating a mobile roaming service. I stress, however, the ACCC has not formed any views on whether declaration of a mobile roaming service would be in the long-term interests of consumers.
A declaration inquiry allows us to better understand some important issues, including:
- consumer demand for mobile services and whether there are differences in regional areas and urban areas
- the mobile network operators’ investment plans to extend coverage and upgrade technology, and
- the barriers to expanding the reach of mobile networks.
We will issue a discussion paper as part of our mobile roaming inquiry in October 2016 and will announce a draft decision in early 2017 and hopefully a final decision in the first half of 2017.
Broadband advertising and information for consumers
Wherever I go I continually hear conversations about broadband speeds. Most people seem to have an opinion and, as this room will appreciate, some are more vocal than others. Indeed, we received over 400 responses to our recent consultation on broadband speed claims and the bulk of these, about 390, were directly from consumers. 
I welcome the discussion; this is an important issue. There is work to be done to ensure consumers and industry have clear information about broadband performance.
We asked for comment because we believe there is a distinct lack of clear information about broadband performance in advertising and other material available to consumers; and there may be a range of factors contributing to this. For example, we wanted to look at what it is possible to say about the performance of today’s broadband services and how we deal with that in our industry guidance.
The current scenario is limiting incentives for RSPs to differentiate themselves and compete on performance. This is a lost opportunity, but it doesn’t have to be this way.
At the moment, the information available to consumers is vague and unquantified and, as many consumers told us, they want to be able to compare ‘apples with apples’.
We are seeing high levels of consumer complaints, confusion and frustration. About 80 per cent of consumer respondents to our consultation told us it is not easy to compare the speed of different internet offers when choosing between internet providers or particular plans.
Right now, decisions are seen to be forced on many consumers as the industry structure evolves and the NBN rollout expands. And consumers are being drawn by the prospect of better quality broadband. So, for the market to function efficiently through this transition, it is important that consumers have access to accurate and transparent information to assist them in making their broadband choices.
So where to next? It is as much an opportunity as it is a challenge for industry to manage this market transition. There is a very real risk that the momentum industry participants have gained from efforts to turn around net promoter scores will be lost.
Consumers told us firmly that independent, verified performance information is needed, and information from service providers that is comparable and accurate is key.
Perhaps in anticipation of this, some respondents to our consultation are already moving to adopt measures and embrace this challenge. We welcome, for example, the industry-led education package currently being prepared to raise consumer awareness about the factors that can affect broadband performance, as outlined in the joint submission from Communications Alliance and the AMTA (Australian Mobile Telecommunications Association).
There have been suggestions from industry, however, that consumers have unrealistic expectations about broadband speeds. Let me be clear; I think that industry advertising has contributed to this problem.
We see our role here as facilitating the change that needs to occur. There are two things the ACCC can do to support this.
First, we will look at ways we can update our current advice to industry to provide certainty and guidance to RSPs that are willing to make accurate claims to consumers about how their networks perform. For example, during peak demand periods, and for consumers on connections that are genuine outliers.
Some respondents to our recent consultation suggested that industry could look to develop or replace the ACCC’s current guidance on broadband speed claims. We note that not all stakeholders, particularly the smaller RSPs and ISPs, agree that industry-made guidance is the way forward.
The ACCC has responsibility to ensure that individuals and businesses comply with the Australian competition and consumer protection laws. Our guidance provides an interpretation of how the ACCC administers these laws and how we exercise our enforcement powers.
The responses to our recent consultation are certainly informative here, particularly feedback from industry participants about the type of guidance that is likely to facilitate better information.
And we take heed of the many consumer responses telling us that independent monitoring and regulation in this market matters.
Second, therefore, the introduction of our proposed Broadband Monitoring Program will assist.
An independent, verified broadband monitoring program will provide consumers with comparable information about their broadband service. And we are pleased to see some service providers are coming to the same view.
Transparency is good for markets and it’s good for consumers, and the overseas experiences tells us it works. The UK has had its broadband monitoring program in place for around eight years, and today we see businesses like Virgin Media actively marketing on the basis of its own performance results in the Ofcom program.
Internationally, we hear that industry participants were initially reluctant to support a regulator-delivered monitoring program, but later those businesses were disappointed when the regulator moved to less frequent performance reporting. The retailers had come to value and rely on the information over time.
We understand that there are currently ways consumers can test the ‘speed’ of their service, but these don’t tell industry, consumers or the regulator where the problems are; or alternatively, where the great performance is. Crowd-sourced tests also suffer from selection bias; we generally log on to an online speed test when things are going wrong, so we don’t get an overall picture of performance.
Our proposed program won’t suffer from these disadvantages. Looking to overseas experience, we are confident consumers and industry will benefit from the program.
As well as the benefits for consumers, we see clear benefits for competition in fixed broadband. The international experience tells us better information can spur competition by assisting consumers to make informed purchasing decisions and reducing the cost of switching.
This will encourage broadband service providers to compete on performance, as well as price and inclusions like data allowances.
A final, yet fundamental advantage of our proposed Broadband Monitoring Program is to avoid disputes over whether poor performance is the fault of the NBN, or ISPs. With so much being spent on the NBN we need to know if it is delivering, or whether problems are due to ISPs purchasing insufficient capacity to service their customers.
Competitive broadband networks
The structure of the telecommunications industry and the role of the NBN will have a major influence on the delivery of telecommunications services and the broader Australian economy for many years to come.
Where it is economically efficient, however, infrastructure-based competition is clearly preferable and will promote the long term interests of end-users. Actual or even potential competition between telecommunications networks can help drive dynamic efficiencies in terms of price competition, product differentiation, innovation and timely investment.
The ACCC considers that non-NBN network operators should not be constrained from deploying networks in competition with NBN Co, unless there are particular circumstances which overwhelmingly suggest it would not be in the long-term interests of end-users.
The ACCC was required to declare a Local Bitstream Access Service (LBAS) as a result of legislative amendments to the Competition and Consumer Act in 2011 as part of the Government’s ‘level playing field provisions’ for facilitating the roll out of the NBN. The LBAS covers superfast broadband networks built or extended by more than 1km after 1 January 2011.
Our decision to commence a declaration inquiry for the Superfast Broadband Access Service (SBAS) was informed by a recommendation of the Vertigan Inquiry to provide for retail competition on vectored VDSL monopoly networks, given that TPG’s plans to deploy a FTTB network would not be captured by the LBAS and other level playing field provisions.
The ACCC declared the SBAS supplied over fixed-line networks on 29 July this year. Since this decision I have read of announcements by three fixed wireless providers of plans to offer superfast broadband services in the market.
In making its decision on the SBAS declaration, the ACCC expressed the view that fixed wireless, satellite and mobile services were capable of offering superfast broadband services but did not currently act as a competitive constraint on fixed line services. This was due to limited availability in the case of fixed wireless and pricing differences in the case of satellite and mobile services.
The ACCC, of course, welcomes the entry of new fixed wireless providers into the superfast broadband market, particularly the prospect of them competing with monopoly fixed line networks. It is possible that competitive entry may, in due course, enable the ACCC to revisit its regulatory settings applied to the superfast broadband market.
The ACCC declared the SBAS in part because the superfast broadband retail offerings for services supplied over non-NBN networks were generally priced higher than similar retail offerings supplied over the NBN. This is despite the NBN’s current geographically uniform wholesale pricing to support uneconomical services in rural and remote parts of the country.
Post declaration, NBN prices have been temporarily applied to the entry-level SBAS wholesale products of other (non-Telstra) fixed superfast broadband networks, unless they are exempted. We recently released a discussion paper seeking views on possible pricing approaches and other terms and conditions of access to the LBAS and SBAS as part of a joint final access determination (FAD) inquiry for these services.
In closing, I urge all of you to engage with the ACCC as we address some of these complex, fascinating and vital telecommunications issues.
We have a consultation hub which makes it easy to provide your views, and our dedicated telecommunications team at the ACCC, and myself and the other ACCC Communications Commissioners, are committed to working with you to ensure Australia’s telecommunications services and markets deliver for all Australians.
Thank you for your time today.