news The national competition regulator has approved an $800 million deal which will see number two telco Optus shut down its HFC cable network and migrate its fixed-line broadband and telephony customers onto the National Broadband Network infrastructure as it is rolled out over the next decade.
In a statement issued yesterday afternoon, the Australian Competition and Consumer Commission said the deal was “finely balanced”; hence the regulator took account of “a substantial amount of public and confidential information” as well as submissions from interested parties in response to its decision.
Its final view, the ACCC wrote, was that the main benefits to the deal outweighed the likely detriment. The regulator saw the main benefits of the deal being the avoidance of the cost of Optus operating its HFC network to provide a similar broadband service to the NBN; and the ability to reduce to the cost of migrating Optus subscribers who are on the HFC cable network to the NBN. There are some 400,000 connections on the Optus HFC cable network.
Balanced against this, the regulator wrote, was the fact that the deal would remove “a potentially significant fixed line competitor” to the NBN in Brisbane, Sydney and Melbourne, meaning that NBN Co would have less competitive pressure on it to keep it accountable.
Despite this negative factor, the ACCC wrote there were a number of “unique reasons” which meant the removal of the HFC cable network as an NBN competitor would have less impact than usually expected. Among these was the fact that Optus was unlikely to extend its HFC cable footprint beyond its current level; the fact that Optus was unlikely to upgrade the network to higher speeds (meaning it would only compete with the NBN on an entry level basis), and that over time, Optus customers on the HFC were likely to be migrated to the NBN eventually anyway as they desired higher speeds.
In addition, “any impact on consumer choice will be minimal,” the ACCC wrote, “since most consumers are likely to choose their fixed line broadband service based on the offer from the retail service provider (eg Optus), not based on the underlying network technology used to deliver their broadband service (eg NBN or HFC network)”. “In other words,” the regulator added, “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 added that competition between Optus’ HFC cable network and the NBN was unlikely to endure in the long term anyway, due to the “pervasive and enduring economies of scale associated with the NBN”. And the regulator also noted that the need for NBN Co to recover its costs was likely to create an incentive for NBN Co to keep costs to efficient levels and to encourage take-up of higher speed services and greater usage.
NBN Co and Optus welcomed the ACCC’s decision. In a statement, NBN CEO Mike Quigley said the regulator’s authorisation was the latest in a series of commercial, operational, policy and construction milestones that underpinned the progress of the NBN.
“The migration of Optus’ cable customers supports the NBN’s business case and confirms the network as the cornerstone of Australia’s digital communications future,” Quigley said. “The fixed network of the future provides national coverage which is wholesale-only, open-access, and available to any retail service provider on non-discriminatory terms. This marks a shift from the past where a number of companies used their resources to duplicate network access infrastructure.”
“The NBN is expected to facilitate further competition in the retail market, and we are already seeing positive signs of this with over 40 telephone and internet retail service providers signed up as customers of NBN Co. With NBN Co offering the underlying technology platform across Australia to all retail service providers on a non-discriminatory basis, it enables these companies to concentrate their investments on developing new and innovative products and services, leading to flow-on benefits for families and businesses.”
“Today’s final decision by the ACCC marks a further move towards a new industry structure in which open access to the NBN will allow any telecommunications and internet service provider the opportunity to offer a service to any customer via either fibre, fixed wireless or satellite,” Quigley said.
Paul O’Sullivan, Country Chief Officer, Australia said: “Authorisation of the NBN Co/Optus HFC Subscriber Agreement marks a milestone in the Government’s policy reforms to enhance retail competition in the fixed sector and is a benefit for Australian consumers. This decision enables Optus to focus on delivering better service standards and more choice for customers through the NBN. We will continue to work closely with NBN Co in preparation for the rollout schedule and customer migration.”
Optus expects that the large-scale migration of customers to NBN infrastructure will commence in 2014, with payments from NBN Co to be received progressively on customer migration. The program is expected to be completed by 2018 across Optus’ entire HFC footprint. Optus will continue to supply services to customers using its HFC network until the NBN is built and customers have been migrated.
In late May Shadow Communications Minister Malcolm Turnbull made a lengthy parliamentary speech damning the ACCC’s then-draft decision to sign off on Optus’ $800 million deal with NBN Co, describing the regulator’s assumptions when approving the arrangement as “heroic”.
Turnbull said that in every other country of which he was aware, one of the key objectives of telecommunications policy was to promote facilities-based competition, which meant encouraging the HFC cable owners — usually pay TV companies — to compete with telcos.
“But here in the socialist paradise of Julia Gillard’s Australia the government is building a massive new fixed line telecommunications monopoly and, just in case there would be any competition with it, the government is paying Telstra and Optus to decommission their HFC networks as well as paying Telstra to decommission its copper network,” the Liberal MP said. “It is difficult, therefore, to think of anything more anti-competitive than a new government owned Telco, the NBN, paying Optus $800 million to shut down the HFC network, which is currently offering high-speed broadband services comparable to those that will eventually be offered by the NBN itself.”
Turnbull pointed out that the ACCC had actually disagreed with many of the assertions made by NBN Co and Optus as part of the rationale for the deal. “… is this a public benefit, or is it really is simply a supposed benefit to Optus?” asked Turnbull. “It all seems a very thin argument. It is as though the ACCC has concluded that what is good for Optus is good for the public of Australia.”
I am on record as being harshly critical of this deal the ACCC has authorised between Optus and NBN Co. I encourage you to read an article I published in late May on the topic if you are interested in my views on the matter. In short, I agree with Turnbull that the claimed “public benefits” from this deal are really benefits to Optus, and that the $800 million payout will unfairly advantage Optus against rivals like iiNet and TPG.
In addition, I note that there are several new puzzling statements in the ACCC’s new statement on the deal today. This statement, for instance, appears to be a gross simplification:
In addition, “any impact on consumer choice will be minimal,” the ACCC wrote, “since most consumers are likely to choose their fixed line broadband service based on the offer from the retail service provider (eg Optus), not based on the underlying network technology used to deliver their broadband service (eg NBN or HFC network)”.
The fallacy that people pick broadband connections based on ISP and not on the underlying technology is one that Optus and Telstra have been pushing for a while, with the pair generating confusing marketing messages at the moment about the difference between ADSL and HFC cable broadband. However, I am surprised the ACCC has swallowed this line. Australians are amongst the most tech-savvy early adopter countries globally and many, if not most, do indeed discriminate between which underlying technology provides their broadband service — as well as their differing inherent characteristics.
Secondly, the ACCC’s statement that the Optus HFC network could only compete with the NBN at the low end is demonstratably untrue, given that Optus has already upgraded its HFC cable network to the DOCSIS 3.0 standard, allowing speeds of up to 80Mbps. Sure, the NBN will eventually do 1Gbps speeds, but NBN Co has not disclosed when those speeds will be available, with the network being limited to 100Mbps speeds for the short to mid-term.
I also highly doubt that the need to make a return will provide NBN Co with enough stimulus to avoid becoming an inefficient government bureaucracy and am surprised that the ACCC believes so. Right now, as an organisation, NBN Co appears to be a great deal more efficient, for example, than Telstra. But is it more efficient than a sleek private sector beast like iiNet or TPG? I highly doubt it. There’s already some fat in there, and keeping competition to a minimum will not provide as much incentive for NBN Co to keep its operations efficient as private sector competition would.
I know why the ACCC is ticking the box on the Optus NBN deal. It’s part of the whole package and the Government wants to make sure the NBN project succeeds. But I don’t like the way this is being done. I guess we will find out in a decade or more if the end justified the means.