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.
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”.
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.