The Australian Competition and Consumer Commission has authorised an agreement between NBN Co and SingTel Optus for the migration of Optus’ HFC subscribers to the NBN and the decommissioning of parts of Optus’ HFC network. This decision confirms a draft decision issued by the ACCC in May 2012.
Broadly, under the Competition and Consumer Act 2010, the ACCC may authorise arrangements where it is satisfied that public benefits outweigh any public detriment likely to result from the arrangements.
“As outlined by the ACCC at the time of the draft determination, this decision is finely balanced,” ACCC Chairman Rod Sims said.
“In coming to its final view the ACCC took account of a substantial amount of public and confidential information in addition to submissions received from interested parties in response to the draft decision.”
“The ACCC remains of the view that the public benefits, which are clear and quantifiable, on balance outweigh the likely detriment.”
The main public benefits of the agreement, in the ACCC’s view, are that the HFC Agreement will:
- avoid the cost of operating the Optus HFC network to provide a service the NBN is also able to provide; and
- reduce the cost of migrating Optus subscribers who are on the HFC to the NBN.
Balanced against this, the HFC Agreement removes a potentially significant fixed line competitor to the NBN in Brisbane, Sydney and Melbourne. Competitive pressure from the Optus HFC network may have resulted in positive outcomes, notably prompting NBN Co to improve its performance.
“The ACCC has looked at these issues closely, both at the draft and final determination stages, and there are unique reasons to conclude that the detriments are likely to be considerably less than usually expected,” Mr Sims said.
These factors include:
- For a range of reasons unrelated to the HFC Agreement the footprint of the Optus HFC network is unlikely to be extended beyond the current 1.4 million homes, limiting the potential for its subscriber base to grow beyond its current level of around 400,000 broadband subscribers.
- The ACCC accepts that Optus is unlikely to undertake the large investment required to allow Optus to offer significantly faster products on the HFC network than those currently available. The Optus HFC network would, therefore, only provide a close substitute to the NBN for customers seeking broadband services at the lower end of the range of services that the NBN will support.
- Over time, Optus customers who are on the HFC will demand higher speed services and are likely to be migrated by Optus to the NBN. There are a range of views on how quickly Optus customers currently on the HFC will want such higher speeds. While the ACCC did not form a view on the future need for high speed broadband, it did accept that the Optus HFC network would be uneconomic to operate once a critical mass of customers were lost.
- Any impact on consumer choice will be minimal since most consumers are likely to choose their fixed line broadband service based on the offer from the retail service provider (e.g. Optus), not based on the underlying network technology used to deliver their broadband service (e.g. NBN or HFC network). In other words, provided services have similar characteristics in terms of capability and reliability, end-users appear largely to be indifferent as to the access network that is used to deliver them.
The ACCC concluded that if it did not grant authorisation, competition between the HFC and the NBN would be unlikely to endure in the long term due to the pervasive and enduring economies of scale associated with the NBN. In addition, the NBN’s terms and conditions of supply will be regulated regardless of any competition from the HFC. In this context, the benefits of competition from the HFC would be limited and complementary to, rather than a substitute for, regulation of the NBN.
Further, the combination of the regulatory framework for NBN Co (which is still under development) and uncertainties associated with future utilisation of the NBN will create a set of incentives that are likely to be more effective than those typically faced by other regulated infrastructure providers.
In particular, NBN Co will only be able to fully recover the costs of its investment if, over time, users demand and migrate to higher speed services with greater data usage. If such demand does not eventuate, then NBN Co will incur a loss. This creates incentives for NBN Co to keep costs to efficient levels and to encourage take-up of higher speed services and greater usage.
Having regard to the findings outlined above, the ACCC has decided to grant authorisation to the subscriber agreement.
Authorisation provides statutory protection from court action for conduct that might otherwise raise concerns under the competition provisions of the Competition and Consumer Act 2010. Broadly, the ACCC may grant an authorisation when it is satisfied that the public benefit from the conduct outweighs any public detriment.
The ACCC’s final determination will be available at www.accc.gov.au/AuthorisationsRegister.
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