news The national competition regulator has provisionally approved the $800 million deal under which the nation’s number two telco Optus will shut down part of its HFC cable network and transfer its broadband customers onto the National Broadband Network infrastructure currently being rolled out around Australia.
The deal, signed in June 2011, is a similar arrangement to the multi-billion-dollar contract NBN Co has signed with Telstra. Like the deal with Telstra, the contract recompenses Optus for the shutdown of its competitive infrastructure and virtually guarantees NBN Co a steady slew of retail customers to be transferred onto its infrastructure. Many of Optus’ customers will likely remain with the company during the transfer, although they will have the option to switch to rival providers once on the NBN — an option they did not have when on Optus’ HFC cable network.
In a statement issued this morning, the ACCC said its draft determination with respect to the Optus deal represented “a finely balanced decision”. Optus’ contract with NBN Co is not available for public viewing; neither is Telstra’s.
ACCC chairman Rod Sims said there were two “clear and quantifiable” benefits from the Optus deal; namely, the avoidance of the cost of operating the Optus HFC network, that would provide a service (broadband) which the NBN was also able to provide; and the ability to deliver a lower cost HFC subscriber migration to the NBN.
However, the deal was not all good news for consumers, the ACCC found. “Balanced against this, the HFC Agreement removes a potentially significant fixed line competitor to the NBN in Brisbane, Sydney and Melbourne,” the ACCC wrote. “Competitive pressure from the Optus HFC network may have resulted in positive outcomes notably prompting NBN Co to improve its performance.” Sims said a number of factors mediated these two downsides to the Optus deal:
- The fact that, “for a range of reasons”, the Optus HFC cable network was unlikely to be extended beyond its current 1.4 million home footprint, which would limit the potential for its subscriber base to grow beyond its current 400,000 subscriber level
- 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 — meaning the cable network would end up being broadly inferior to the NBN
- The fact that over time, HFC customers would likely be migrated by Optus to the NBN anyway.
“There are a range of views on how quickly Optus’ current HFC customers will want such higher speeds,” the ACCC wrote. “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.”
In addition, the ACCC also, in its decision, argued that some of the usually expected gains from competition in the context of the NBN would be likely to be reduced. “For example, the regulatory approach which will ultimately apply to the NBN is intended to provide strong incentives for NBN Co to promote utilisation of the NBN and to be responsive to customer needs concerning speeds and other aspects of service quality,” Sims said.
In a separate statement, Optus welcomed the decision. “The ACCC’s draft decision recognises the practical outcome of Optus’ agreement with NBN Co will be to drive significantly greater retail competition and product innovation, which can only benefit telecommunications customers,” said Paul O’Sullivan, Optus ‘chief country officer’.
“With ACCC approval, Optus will be able to redirect resources away from having to maintain its existing HFC network towards offering a greater depth and breadth of services to retail customers on a single national platform. Approving the deal will pave the way for true market competition and innovation in an NBN world.”
“ACCC approval will pave the way for a genuine win-win deal, freeing up resources that can be used more effectively to open up retail competition on a single advanced network that covers the country. Locking carriers into smaller-scale wholesale competition with the NBN founded on existing network platforms would never offer such nationwide benefits, because existing HFC networks only cover certain regions.”
Opinion/analysis to follow separately.