Check against delivery
I am delighted to be here today at this exciting time for telecommunications.
I have been involved in telecommunications policy and regulation since the late 1980s.
The beginning of reform was taking the regulatory function out of then Telecom, and forming Austel. Then followed the facilitated entry of Optus, and then a progressive opening up of the market.
The industry has changed dramatically, due to competition and technology. In those early days we had no idea how the copper could be used for broadband; indeed, we had little knowledge of broadband, both fixed and certainly mobile.
We are now at yet another amazing turning point in the industry, and we find ourselves at the ACCC involved in much that is happening.
Today I want to take a little license, given this is an “unwired” conference, and cover four topics across the telecommunications landscape.
- First, progress with our market study.
- Second, our interest in broadband speeds.
- Third, the exciting entry of TPG as a mobile network operator, and also Vodafone into fixed broadband.
- Fourth, I will make some brief comments on mobile roaming.
1. Our Market study is revealing many issues and promoting great discussion
We initiated our market study into the communications sector in September last year.
We have had many submissions reflecting considerable interest and issues.
In my view our forum earlier this month was a stunning success. This saw a very wide range of industry participants spend two days with us discussing all the relevant issues; and doing so in a frank and often robust way.
What was fascinating was hearing different, often competing, perspectives on the same issue. While we are yet to make findings on any of these issues, such discussions with industry and wider stakeholders have been very important to our thinking.
Today I want to share much of what I said at the conclusion of the two days, and add a few other comments, under five headings.
First, potential substitution between fixed line, fixed wireless and mobile. One conclusion seemed to be that the degree of substitution will in part depend on performance of NBN services in terms of price and service quality.
If, for example, people are reluctant to pay the price required for high speeds, staying with only mobile broadband could be attractive to many.
In addition, particularly in regional areas, if NBN performance is seen as not meeting consumers’ needs then more fixed wireless services may be taken up.
Also influencing the potential for mobile and fixed wireless services to compete is the margin available to broadband service providers on NBN and other fixed-line networks. This is, at least in part, determined by NBN prices to its wholesale customers that I will come to in a moment.
Second, the wholesale fixed aggregation market is clearly not seen as being as well served as the downstream service providers would like. This topic saw a robust debate.
There is, of course, a conflict as a vertically integrated player will not want to provide services to potential competitors. With four potential aggregators, however, why do they not see that if they do not provide a good service others will?
Related, there was also discussion about any barriers to direct connection to the NBN points of interconnection (POIs) by new entrants and smaller providers. This included the scale needed to make connection to a POI commercially viable and access to dark fibre as an alternative to managed transmission services. Also discussed was the alternative of a so-called NBN trunking product.
These alternatives must be in play if the wholesale market is not working.
Third, and no surprise, there was significant discussion of the apparent reluctance of consumers to take up higher speed NBN services.
For RSPs the answer was clear. The general view we heard (from both large and smaller RSPs) was that with current CVC pricing, many were reluctant to sell these services.
That is, far from consumers not wanting higher speeds, RSPs were often not seeking to sell them, at least not at prices consumers are willing to pay. We heard their view that $60 per month is the average price point in the market for NBN services.
The view clearly expressed was that the current pricing construct is impacting the market’s ability to offer higher speeds. Because of the uncertainty about demand growth and customers’ expectations, RSPs are often not selling higher speed services which would require more CVC.
Some service providers felt that a CVC pricing construct was better suited to a FTTP product, where there was more confidence in the speeds able to be delivered than to, say, an FTTN service. It is not clear that this is the case, and we will explore this claim further as we consider NBN’s current SAU variation.
We are yet to determine where we will take these views but I will say this: two-part tariffs are often efficient, particularly in mature markets, and the AVC/CVC pricing construct has been a feature of NBN Co pricing since the project’s inception. When we last formally considered NBN Co’s pricing in its original access undertaking we accepted the pricing structure as being reasonable because it would alleviate initial price shocks and give NBN Co the opportunity to recover its costs as usage of the network grew. We put into place price caps that safeguard the interests of consumers, but essentially we left the demand-side risk with NBN and its wholesale customers.
We have limited rights in relation to NBN Co pricing under NBN Co’s Access Undertaking. We are concerned, however, that the uncertainty generated by the charging structure is having an adverse effect on competition and consumers in this emerging market, and we will have to look closely at our regulatory options if the industry can’t resolve this uncertainty.
I do think the ACCC’s broadband speeds project will provide valuable information for consumers and, therefore, will influence such behaviour; but this is my next topic.
Fourth, we spent some time on NBN service delivery and consumer issues.
There was considerable discussion of NBN Co’s Wholesale Broadband Agreement (WBA); both the services promised, and the absence of consumer redress for their non-delivery.
The ACCC regulates NBN Co’s prices, but not its service standard. This is unusual. Usually monopolies are regulated in terms of price and service, given a monopoly’s natural inclination to charge more and offer less.
One issue we are starting to look at closely is whether there are any terms in the wholesale contracts between NBN Co and its retail customers that are impeding consumers from obtaining redress in the event of NBN caused connection and service faults.
A consumer’s primary relationship is with the retail service provider. If consumers are not obtaining redress for NBN Co-caused faults, either because of exclusions in retail contracts, or because of issues in the retailer recovering compensation from NBN Co under the wholesale broadband agreement, that would be of considerable concern to the ACCC.
Finally, there was considerable interest in spectrum at the forum. This was particularly discussed by fixed wireless providers in regional areas, and potential Internet of Things (IoT) providers.
There was also considerable discussion about the spectrum needs of 5G.
It is worth today spending a bit more time on spectrum, particularly as this is a topic more in keeping with the theme of this conference.
Spectrum scarcity can create conditions with adverse outcomes for end users if it results in decreased competition in retail markets or in technologies not becoming widely available that may enhance productivity.
We naturally view spectrum through a different lens to the ACMA although we continue to work well with them on issues as they arise. In line with its responsibility, the ACMA is directed by the government to ensuring that spectrum is allocated to its highest value use; that is, both economic value and social value.
The ACCC’s primary interest in spectrum is that the markets which rely on spectrum as an input are as competitive as possible.
Under the current regime, we provide advice to the Minister of Communications, when asked, on whether competition limits should apply to spectrum licence allocations. We also assess spectrum acquisitions under section 50 of the Competition and Consumer Act, which applies the substantial lessening of competition test.
Our past approach to competition limits has been quite simple: we sought to prevent monopolisation of spectrum by any one licensee in particular bands. More recently, we were asked by the Minister to consider the long-term interests of end-users test.
A fundamental question is which of these tests responds to a world of increasing spectrum scarcity.
Further, should we assess the overall spectrum that an operator can hold as Ofcom in the United Kingdom has just done, or spectrum holdings of an operator across high or low bands?
Past wisdom has held that allocative efficiency was best served by holding an auction. The theory being that the person who valued the spectrum most highly would acquire it.
However, and obviously, this approach for high value spectrum runs a severe risk of inefficient outcomes as the value of acquiring spectrum can easily include the benefit of preventing a competitor from gaining access or of preventing a new entrant; the foreclosure motive. It also has the potential to block access from smaller, but over time valuable players if the price is too high.
When governments sell monopoly assets for the highest price the economy usually loses out. The value of spectrum clearly lies in the economic and social benefits it can provide to citizens and consumers, not in financial returns to the Budget.
The new Radiocommunications Act aims to encourage more market-based activity. This is a sensible approach to spectrum scarcity provided it actually results in spectrum sharing, trading and more efficient use of existing spectrum resources.
What we question is whether the incentives exist for operators to do so. Will we see Telstra, for example, sharing its not inconsiderable spectrum resources with a new competitor because the legislation enables this? Will we see an MNO licensing some of its spectrum to small wireless ISPs, serving regional communities that may compete with it in downstream markets for some services?
We know that digital agriculture depends on connection and data. Black spots now encompass bandwidth and connection issues, not just mobile coverage. Regional communities need sufficient bandwidth to allow data to be accessed across a farm and sufficient bandwidth and reliability to connect to other regions. And we need innovative solutions to meet these needs.
We are keen for the promotion of competition in relevant markets to be included in the new spectrum framework. Anti-competitive behaviour can be prevented in many ways, including through spectrum caps; or by reserving spectrum for new entrants or establishing rules specifying how spectrum can be traded by licensees. Giving the ACCC the ability to promote efficient markets when spectrum is allocated seems like a win-win proposition and one that we will be exploring further with the Department of Communications. We will also continue to work closely with the ACMA when considering the competitive implications of spectrum allocation processes.
2. The importance of the ACCC’s work on broadband speeds
I believe that the ACCC’s Broadband Monitoring Scheme and our speed claims advertising guidance and enforcement work will be game changers.
The fact that speed performance will be public should compel providers to lift their game.
As will the way they advertise; and we will highlight and customers will notice whether companies are advertising in a transparent or a misleading way.
Let me explain.
Right now, consumers are not getting the basic information they need to make an informed choice. Indeed, they are often being misled.
In response, the ACCC is taking action to ensure this information gap is addressed and consumers know what they are paying for.
With our limited resources we are using three related strategies to ensure consumers get accurate, comparable information about broadband services:
First, we are setting up our broadband monitoring program.
Second, we are providing updated guidance to industry about truth in advertising and assisting their customers make properly informed purchase decisions.
Third, I have noted recently that we are investigating and expect to be taking action in respect of misleading conduct around broadband speeds, including with practices that fail to meet the consumer guarantees that are provided by the Australian Consumer Law.
We are investigating whether retailers are offering or have sold broadband services to consumers at maximum or off-peak speeds they cannot deliver, because we recognise the damaging impact these practices can have on consumers and on an evolving market.
Broadband is an ACCC compliance and enforcement priority this year: we expect to have cases in court before the year is out.
We know that when consumers have access to accurate, comparable information and can confidently rely on it, they can engage positively and make informed decisions.
The move to the NBN and the way in which NBN technologies work mean retailers need to dramatically re-think their marketing practices and ensure consumers are presented with the information they need.
There has never been a more important time to make confident and informed broadband purchasing decisions. The information consumers are currently provided with does not make this possible.
Our broadband monitoring program received the green light from the Federal Government in April.
Similar to established international programs, the ACCC’s program will provide consumers with accurate, comparable information about the performance of fixed-retail broadband services, which they will be able to use for shopping around and checking they receive what they pay for.
Importantly, the broadband monitoring program will also draw out whether issues are being caused by the performance of the NBN, or by ISPs not buying sufficient capacity.
It will also provide ISPs with independent performance information to draw on.
We will begin publishing speed and performance data later this year as large numbers of consumers move to the NBN.
We launched our initial call for volunteers who want to join the testing panel for the program just over a month ago, and we’re very pleased with the engagement and interest we’ve had. People see enormous benefit from this initiative, which is not surprising since many consumers have been telling us that they are confused about broadband speed advertising.
We have also been out to tender for an independent testing provider, another key element of our program.
This program is necessary as the industry has been inconsistent in making clear, accurate information available.
Which leads me to our second strategy, which involves giving clear guidance to industry on how to provide meaningful, accurate information in a way that takes into consideration the Australian Consumer Law.
We want the industry to be a part of good outcomes for consumers, and so are providing upfront (as much as we can) the regulator’s view on what is and isn’t acceptable.
There are some – but not too many – other sectors that get to hear the regulator’s view in advance, and we hope that providing it allows business to plan their activities with a degree of certainty.
In February, we announced six principles retailers should follow when advertising broadband speeds. To summarise, they are:
- Consumers should be given accurate information about typical busy period speeds that they can expect to receive
- Theoretical speeds taken from technical specifications should not be advertised unless the typical busy period speeds are also included
- Information about the performance of promoted applications of the service should be accurate
- Any factors known to affect service performance should be disclosed
- Performance information should be presented in a manner that is easily comparable by consumers
- Retail service providers should have systems in place to diagnose and resolve broadband issues.
In coming weeks the ACCC will provide industry guidance as to what we – and consumers – can and should expect.
After the guidance has been released we will be taking a very close look at the advertising in the market. We will conduct compliance sweeps to assess the whether advertising practices have improved significantly and we will follow with any necessary enforcement action where problematic conduct is still occurring.
Importantly, what we want to see is retailers moving away from unhelpful and easily misconstrued claims like ‘up to’, ‘boost’ and ‘superfast’, and from advertising and/or providing information about theoretical maximum speeds that are based on wholesale inputs.
We want to see consumers presented with information based on the realistic speeds they can expect to experience, particularly during busy periods. Not just best-case scenarios.
Too often we see speeds presented only in terms of the maximum speed of the access link that the retailer is purchasing, and not what the retailer itself can deliver over its end-to-end network during the busy periods, which is paramount since this is when most consumers are on line. This should stop.
The third strategy is self evident. Providers in this sector must comply with their obligations under the Australian Consumer Law.
3. The entry of TPG into mobiles and Vodafone into fixed broadband will greatly assist competitive market outcomes
In September 2012, David Thodey, then CEO of Telstra, stated that:
… All the data we’ve looked at around the world says three [operators in a market] are very rational from a pricing perspective. Once we get to four or five is when you start to get behaviour that can be aberrant in terms of shareholder value.
This is all commercial common sense.
In my terms, therefore, introducing a fourth mobile network operator, TPG, will be great for consumers.
So will Vodafone’s entry into fixed broadband.
In my view having four mobile and five major broadband players is to be welcomed, encouraged and, as much as possible, retained over the longer term. Indeed, I am of the view that there is increasing room for a fourth player in the mobile network market.
TPG has been a vigorous competitor in the fixed broadband market and who doubts it will be the same in the mobile world?
Having competing mobile networks that differ from each other in terms of coverage, technology and quality can only be a good thing for consumers. In a dynamic market, a network may have a superior coverage or technology that gives it a competitive advantage over its rivals. But this is in constant flux.
MNOs compete by investing in network expansion and technologies, as well as content.
This is a different model from what we observe in the banking industry where the Big Four have very little differentiation around the services and products they offer, and the price at which those offers are made.
This means TPG doesn’t need a network covering 99 per cent or even 97 per cent of the population to be competitive. What we see is that TPG has the ability to build a network with significant population coverage given its extensive existing infrastructure assets, its recent investments in spectrum and given the concentration of Australia’s population in cities. This is good for consumers.
Having said that, I expect TPG to obtain a roaming agreement around the edges of its network. In these areas, there are three MNOs that have incentive to offer a wholesale roaming service. We will be disappointed if this does not occur.
VHA announced it will launch a fixed-line broadband service over the NBN by the end of 2017 to complement its mobile services, giving its customers a seamless internet experience.
VHA’s entry will increase the level of competition for NBN services.
These developments will see four large fixed and mobile operators in Australia competing with smaller RSPs and MVNOs for fixed and mobile services. It is possible that their ability to offer both fixed and mobile services will provide them with a competitive advantage, so the ACCC will carefully monitor how competition in these markets develops.
4. Some brief comments on mobile roaming
I know I cannot leave today without making some comments on mobile roaming.
As you would all be aware, on May 5, 2017, we released a draft decision proposing to not declare a domestic roaming service. VHA subsequently made an application to the Federal Court under the Administrative Decisions (Judicial Review) Act 1977, seeking review of the ACCC’s conduct in holding a public inquiry under the Telecommunications Act 1997.
In the meantime, the ACCC is continuing with the current inquiry process. We are conscious that the inquiry has created a lot of uncertainty for the MNOs and for consumers in regional areas.
Let me say a little on broader competition issues in the provision of service to regional Australia that we are considering in finalising our inquiry.
There will almost always be areas of Australia in which the cost of extending and maintaining networks in regional areas is prohibitively high.
There have been a number of policy initiatives to subsidise network expansions into these non-commercial areas such as the Australian Government’s Mobile Black Spots Program. All levels of government have similar initiatives.
As the competition and consumer protection regulator, we see advantages and the disadvantages in these programs.
Let me explain …
A well-designed subsidy programs can ‘infill’ areas where it would otherwise not be economic to extend mobile coverage.
This benefits consumers who live in these areas, and those that travel through such areas.
However … subsidies can entrench the gap between different networks and lead to claims of an unfair advantage being given to the operator with the largest network which will benefit the most from such subsidies; in this case, Telstra, because in many areas, regional consumers can only choose one operator – in most cases, Telstra.
We have also flagged interest in a number of other issues, for example:
- Measures to improve transparency around network quality, expansions and improvements. We suggested that there was a lack of transparency around the reporting of network coverage and future network rollout and upgrade plans. There is a balance here between MNOs being able to invest to get a competitive advantage and consumers having enough information to make more informed decisions about the services available in their area. We are continuing to think through these issues and how more granular information can promote competition
- Measures to reduce the costs of deploying and improving mobile networks. We also think that there are a range of measures that could assist MNOs to extend their networks at a reduced cost. These include improving the facilities access regime and increasing the use of NBN infrastructure where possible. By encouraging operators to share infrastructure such as base stations, some build costs can be reduced.
- Increasing competition considerations in the spectrum management framework. The ACCC would be in a better position to promote competition in markets for mobile retail services if competition is a specific object in the Radiocommunications Act.
These are exciting times in telecommunications. There is much we need to get right; if we do, Australia and Australians will gain significantly. If we do not, then our country will be held back, significantly.
Thank you for your time today.