news A war of words has erupted between the ACCC and Malcolm Turnbull’s Department of Communications, with the department claiming a pricing decision by the regulator has the potential to delay Australians migrating to next-generational National Broadband Network infrastructure.
In late June, the ACCC made a draft determination on pricing for a certain number of fixed-line telecommunications services, revealing that it had decided Telstra would need to issue a 9.6 percent drop in prices to its wholesale customers. This could mean that broadband providers such as Optus, iiNet and TPG could cut their prices substantially.
As expected, Telstra strenuously objected to the cut, with its regulatory chief Jane van Beelen posting a fiery worded blog post on its Exchange site yesterday arguing that the ACCC’s decision had “serious flaws” and contradicted the regulator’s principle that telcos in such situation should be able to charge amounts that would allow them to recover their costs.
This morning it was revealed (with iTnews appearing to break the story) that the Department of Communications had also written to the ACCC (PDF letter here) complaining about the decision.
Among other arguments, the department stated that the Government considered that the highest possible priority should be given in the ACCC’s determination to what it termed “pricing stability”.
“The Department is concerned that the proposed price decrease for fixed-line services will discourage migration throughout the migration window and could lead to a significant number of customers remaining on the old network in the lead-up to the disconnection date,” departmental secretary Drew Clarke wrote in the letter.
Essentially, the Department is arguing that customers will not switch to the NBN when the new infrastructure is rolled out in their area because they will be paying higher prices than they were on the old infrastructure.
But the Department also went further, arguing that broadband providers themselves might delay migrating their customers as they could obtain higher margins through keeping customers on the old legacy copper infrastructure. Telstra agreed with this line, with van Beelen arguing:
“It would also mean service providers would have a profit motive to keep their customers on the higher margin copper network for as long as possible, rather than move their customers across to the NBN. This would make migration to the NBN even harder to achieve and put important revenue to NBN Co at risk. In this way, a cut to prices on the legacy network poses a serious danger to the success of the NBN policy.”
As evidence for its argument, the Department referred to a similar situation in New Zealand, where, it said, “the pricing differential between copper-based services and fibre-based services raised questions about incentives to migrate to the fibre network”.
opinion/analysis
Wow. With the greatest of respect, we’re really seeing some premium Grade A questionable arguments being made here. A Coalition Government — normally in favour of letting free markets determine pricing — is arguing that the ACCC’s role should be to ensure “pricing stability” and not encourage lower prices for Australian broadband users. Wow. That sure sounds a bit too socialist for me.
Meanwhile, Telstra — yes, the same telco which just posted a 22.4 percent jump in half-year profits to $2.1 billion and is about to be paid $11 billion by the Government to migrate its customers off its copper network, probably picking up some construction work from nbn along the way — is complaining that it’s in terms of the historically expensive prices it charges competitors for access to its wholesale network.
My opinion is that the ACCC should do its job, advocate on behalf of competition and consumers, and reject the arguments that Telstra and the Government are making.
Firstly, there is no reasonable prospect that broadband providers and consumers are going to delay shifting onto the NBN for a few dollars a month — most consumers are dying to get onto the NBN at any cost, and competition for NBN customers is so fierce that I can’t see ISPs charging more for their NBN plans than they do for their existing ADSL broadband plans.
If Telstra was worried about cost recovery, it should have made this a higher focus in its NBN deal with the Government. And I suspect if you spoke to most non-Telstra players in the industry, you’d find that they have felt they have been getting fleeced on wholesale prices from Telstra over the past two decades. I’m not familiar with the extreme financial details — and I’m happy to be corrected, but I suspect Telstra is well able to take this one on the chin.
Telstra is not able to take this one on the chin….and the decision makes a farce of the whole regulatory price setting approach. What has changed since the last decision made by the ACCC in Telstra’s costs? Nothing.
The objective of the regulator isn’t lower prices – it has been the Long Term Interest of End Users which requires investors to get a fair return.
Turnbull needs to show spine and not just write letters but use section 152CH of the Competition and Consumer Act to make a Ministerial Pricing Determination that makes price stability a means of determining price for these services.
hi David,
thanks for your comments.
I’d like to hear your rationale for why price stability should be a priority for the ACCC? I’ve never heard of this being important in the past — and certainly there is a strong argument to be made that Telstra’s costs in providing wholesale access to its copper network should come down over time. This certainly appears to have been the case in the past.
Renai
Funny, it seems to me the ‘Long Term Interest of End Users’ is diametrically opposed to ‘investors getting a fair return’ (because the term ‘fair’ as defined by investors is really the maximum possible ROI, as in, ‘we invested money, it is only fair that we make as much money as possible to compensate us for the risk we took, otherwise we’ll take our money elsewhere’). When maximum investor returns equates to maximising price and minimising costs (such as customer service and over-delivering on design and quality), then the interests of investors runs counter to the interests of customers, as they want the highest quality product with the best possible customer service at the lowest possible price. Diametrically opposed.
You are absolutely right. This is why there should be no involvement in, or lobbying from, a player with a commercial interest in the NBN.
In a competitive scenario on a level playing field, the same factors apply, but the customers will usually migrate to the best VALUE offering. This is not possible with the NBN (or it would have eventuated years ago) so there has to be some regulation.
So far, all ISPs have offered lower prices for an NBN connection than the equivalent over a Telstra wholesale ADSL connection. That indicates NBN wholesale prices are lower than Telstra. Funny that.
Great to have you back Renai! The tech news space is less without you :)
Hope all is well
For the record: https://www.liberal.org.au/fast-affordable-sooner-coalitions-plan-better-nbn
“The Coalition’s plan will ensure the National Broadband Network is rolled out faster and cheaper, resulting in lower prices for consumers.”
…all under the “Three Word Slogan” of: “Fast. Affordable. Sooner.”
After two years of government, there’s not been a single FTTN commercial service launched… (and not expected to be for some months) …and there’s only a handful of trial users, anywhere in the country. Some numbers are as low as 67 trial users.
So there’s the “sooner” argument squashed. Now they’re working on killing the “affordable” argument.
We all know the “fast” argument died long ago.
SO disappointing. According to Jolly Joe Hockey Sticks, the nation will now fork out $70 BILLION, in one way or another, for the Coalition’s MTM version of the NBN, when the NBN’s own cost analysis showed that the full fibre (FTTP) model could have been implemented for $55 billion (and be half finished by now).
Roughly equivalent to buying a Ford Focus for $70,000 instead of a Mercedes for $55,000! The main difference being that the Ford Focus would not have to be replaced almost as soon as it was bought …
“most consumers are dying to get onto the NBN at any cost”
I would agree with that in regard to fiber, but Turnbull made the NBN stop planning new fiber when he tookover the board.
AFAIK its a choice now between old copper and the same old copper, so price does come into it.
ALSO, great to see the site back.
I remember a time when Turnbull used to say “The biggest barrier to accessing the internet is not distance or indeed technology but cost”, that statement is not necessarily at odds with what he is saying today however there is no reason why wholesale prices cant drop. It just means less money for Telstra and I’m OK with that. For me personally as it stands I wont be in a hurry to move onto the gimped network but it wont have anything to do cost over ADSL2+ and that’s assuming it’s more, it’s just that it wouldn’t offer me anything significant over what I have now.
Interesting to see the department jumping in on this and giving the ACCC a good old dressing down for having the temerity to come down on the side of consumers. But it is warming to know that Telstra is getting some return for their considerable investments in political lobbying.
The argument is idiotic – people will be migrated to the NBN once their area is ready to change over anyway. That’s part of why Telstra is being paid $12bn, because they can’t keep any customers, they don’t have any choice (neither Telstra, nor the customers). It is inevitable. So this whole line or argument is flawed.
Thank you! That was my understanding too. Renai, please let us know if this is not the case.
Except for the fact that it maintains Telstra’s profit margins in the meantime?
Simply astounding that the Minister for Communications’ dept is arguing against. a reduction in prices for end consumers. Simply staggering!
So much for the mantra of ‘cheaper’. Malcolm Turnbull’s pre-election spin is coming back to bite him on the bum.
“The Department is concerned that the proposed price decrease for fixed-line services will discourage migration throughout the migration window and could lead to a significant number of customers remaining on the old network in the lead-up to the disconnection date,” departmental secretary Drew Clarke wrote in the letter.
Essentially, the Department is arguing that customers will not switch to the NBN when the new infrastructure is rolled out in their area because they will be paying higher prices than they were on the old infrastructure.
Moving from ADSL dialup technology to ADSL dialup technology and pay twice as much for it. Why else is the HFC not fully congested also like it will be. HFC no doubt will be charged more because it’s superior to FTTN
The reason Telstra is complaining about a lower wholesale price on the legacy copper network is that they’ve agreed with the government to be paid each time a customer is REMOVED from the legacy copper network and transferred onto the new NBN.
The government made it in Telstras interest for people to join the NBN by this mechanism which is now flawed.
So that’s where Telstra is coming from, less users transferring to NBN means less NBN transfer fees under the government deal.
From the Governments (and tax payers) perspective this is completely unacceptable, if anything they should be increasing the price of the legacy copper network to drive people onto the new NBN network.
We can’t have a situation where the tax payer is on the hook for around $100 billion in IT infrastructure and all the end users refuse to use it because their ADSL is cheaper.
Ultimately apart from the government issuing a price determination which I doubt the Liberals would do since they’re so free market. What they could do is lower the price of the 12 / 1 Tier 1 NBN price tier so that it is marginally more attractive than ADSL is.
The NBN wholesale prices were always planned to lower over time, maybe they could just do it early on the cheap tier as a bit of a motivating factor for budget customers.
If they did that it would allow the really cheapskate customers to keep their low price service, they would still transfer to the NBN and NBN would still be viable.
You can’t keep your low price service. You move to NBN or you lose your connection, because the copper on which your low price service is on, is going to be converted to a FTTN solution. This will no longer be compatible with the old POTS solution.
All it does is cut into Telstra’s profit take.
NBN is already price competitive with DSL and phone on copper.
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