opinion The ACCC’s move to allow TPG’s buyout of iiNet is an appalling decision which will finally complete the long-running, gradual death of actual competition in Australia’s broadband market. The tragedy of the situation is that the well-meaning regulator has nevertheless contributed to the process at several key points along the way.
The decision announced this morning by the Australian Competition and Consumer Commission to allow TPG to acquire iiNet is the telecommunications industry’s equivalent of the infamous trip taken by former House of Representatives Speaker Bronwyn Bishop to a Liberal Party fundraiser in Geelong.
At the time, Bishop argued that the trip was legitimately within the definition of allowed activities within her parliamentary entitlements. This claim may very well have been true. However, as Treasurer Joe Hockey added, it failed the “sniff test”. Even if technically allowed, there was absolutely no doubt that the vast majority of the public would not have approved of the use of public funds in this manner.
The ACCC’s decision with relation to TPG’s acquisition of iiNet likewise most likely meets the letter of the law with respect to its role adjudicating market competition in Australia.
I spoke to ACCC chair Rod Sims about the decision this morning, and I have no doubt that the regulator is acting intelligently and thoughtfully with regard to this decision. It is, after all, the foremost expect on its own Act, and it is likely that its decision meets the technical requirements of the legislation, which prohibits mergers resulting in a “substantial” lessening of competition.
iiNet’s position in Australia’s broadband market has always been premised on two factors. The first is its continual role as a customer champion, which has seen it constantly introducing new products such as uncapped ADSL1 broadband, ADSL2, ADSL2+, Internet telephony and television, as well as solid customer support, the technical competency of its networks and defending digital rights in the courts and against draconian legislation such as the Internet filter and data retention.
The second is price. iiNet’s broadband services have always been a degree cheaper than those provided by the top end of town — major providers like Optus and Telstra who have been determined to keep their profit margins intact. However, the company has always charged more than cut-rate providers like TPG and Dodo.
What Australians have always gotten from iiNet is a customer champion determined to make their broadband better, coupled with very good services and middle of the range prices that we have been happy to pay.
The ACCC is clearly deeply aware of these factors which have let to iiNet’s unique position in the market.
Sims told me that iiNet’s continual role as an innovator in the market was one of the key points which made this such a hard decision for the regulator — people repeatedly raised this issue with the regulator during its consultation process. And the regulator is also keenly aware of iiNet’s position in the mid-market.
The Act itself requires the ACCC to take a number of factors into account when judging the definition of “substantial” — ranging from the height of barriers to entry to a market to the degree of its vertical integration and other characteristics such as growth, innovation and product differentiation.
However, ultimately the ACCC does look at markets numerically, and the fact is that the departure of iiNet from Australia’s broadband market will still leave four major players — Telstra, Optus, TPG and M2.
Sims acknowledges that there will be an impact on the market from iiNet’s depature. However, ultimately the ACCC believes that firstly, TPG should be motivated to continue to serve the iiNet customers it will acquire, and that secondly, if TPG’s buyout of iiNet causes a huge gap in the market, one of the three other major players will step in to fill that gap.
On paper and with relation to traditional competition theory, this constitutes solid logic. It also fits in with the prevailing Australian sense of markets — we don’t seem to mind a small number of strong players. Think Coles and Woolworths, or Qantas and Virgin. The examples are endless.
However, in practice I believe Australia’s broadband market will be impacted much more severely than the ACCC believes by TPG’s buyout of iiNet.
The first problem is that it is extremely unlikely that any of Australia’s other major telcos will step up to become an innovative force in the market. TPG has long held a position as a cut-rate provider in the market and doesn’t tend to push the envelope, while our national incumbent Telstra has a strong vested interest in the status quo. Optus has continually failed over the past decade to innovate in fixed-line broadband in Australia, and has suffered a stagnating market share in that sector as a result.
M2’s brands — principally iPrimus and Dodo — again, are not viewed as sources of innovative products in Australia’s broadband market. iPrimus was failing to make traction with customers when M2 bought it, while Dodo, like TPG, is a cut-rate provider.
Then too, the removal of iiNet from the market relieves competitive tension on all of the other players.
The truth is that companies like TPG and Dodo — which compete at the bottom, price-conscious end of the market — do not truly bleed customers from the likes of Telstra and Optus, who primarily serve the higher, more affluent end of the market. The removal of iiNet from Australia’s broadband market will likely leave all of these players further to their own devices. TPG could, theoretically, leave iiNet’s existing broadband plans intact. But it has not done so in the past when acquiring others — its standard tactic is to unify its offerings at the bottom of the market.
At this stage in Australia’s telecommunications history, iiNet is probably the only broadband player to sit squarely in the mid-market, challenging both TPG with better customer services and add-on products, while also challenging Telstra and Optus with cheaper prices and continued innovation.
The ACCC’s contention that other players will jump in if TPG stops serving mid-market iiNet customers well is not bourne out by reality. Optus has very little energy for the fixed-line broadband market and concentrates its efforts on mobile, Telstra merely wants to maintain its margins and will force those customers to pay higher prices for services they were getting through iiNet, and TPG itself will keep focusing on the bottom end of the market.
M2, while an interesting sideline, does not yet represent a serious threat to any of these players, with the diverse stable of brands it saved from their own financial failures not truly shaping the market in any way. It is not yet a strong player like iiNet.
The tragedy of the ACCC is that it has had many different opportunities over the past 15 years to stop the extreme consolidation of the market from taking place. The regulator could have stepped in a number of times to stop iiNet’s own consolidation of the broadband market — blocking it from reducing consolidation in Western Australia through the acquisition of Westnet, South Australia through the acquisitions of Internode and Adam Internet, and in Victoria through Netspace. Any of these companies could have grown further and remained as strong tier two players in Australia’s future broadband space.
The ACCC also could have increased — instead of destroyed — market competition in Australia’s broadband sector by deciding that the nascent National Broadband Network would feature only 12 Points of Interconnect instead of the 121 it ended up with. Internode founder Simon Hackett warned after that decision that it would lead to market consolidation in Australia — and he was, as he usually is, precisely right.
At all of these points, the ACCC has taken the decision which appeared right on paper. But the fact is with a long-term view, that the extreme explosion in competition after the deregulation of the telecommunications market in 1997 has been almost entirely wound back since that time.
Australia now has just three major mobile carriers — with the largest player Telstra bolting on customers at a rate of knots and the others stagnating — and just four major fixed-line broadband players, with every innovative player have been acquired and no real competition left between the companies left.
There is no doubt that the ACCC means well when it comes to its judgements on Australia’s broadband sector. And it has valid reasons for making each individual decision that it has. But like any well-meaning bungler, this doesn’t change the fact that its actions have, over the long-term, significantly decreased competition in Australian broadband rather than increasing it. That fact is indisputable.
The problem with the ACCC’s reasoning is that, like Bishop’s helicopter ride to Geelong, its may look good on paper, but it does not pass the “sniff test” of common sense.
One simple question illustrates just how far the ACCC has bungled this.
Upon his return to lead Apple in 1997, Steve Jobs famously flew into a rage when confronted by a legion of competing products instigated by his predecessors which were not clearly differentiated by customer type. “I had people explaining this to me for three weeks. I couldn’t figure it out,” the Apple supremo said in his biography, when faced with a dozen different versions of the Mac. He eventually began asking his product managers simple questions like: “Which ones do I tell my friends to buy?”
The ACCC’s decision with iiNet this morning leaves technically minded Australians with a similar quandary. People often ask me which ISP they should choose. Most of the time, I want to recommend a mid-market ISP with reliable service, decent customer support, and prices which aren’t too high or too low. It would help if the company acts as a good citizen in not caving in instantly to Government surveillance or Internet censorship demands. That’s why, for a long time, I’ve been recommending iiNet.
As of today, there is no such broadband provider in Australia — there is nobody to recommend. I don’t know who tell others that they should buy broadband services from. And that doesn’t represent a failure of market competition, I don’t know what does.
“The ACCC’s decision with relation to TPG’s acquisition of iiNet likewise most likely meets the letter of the law with respect to its role adjudicating market competition in Australia. ”
Renai, in short the ACCC would prefer there to be infrastructure competition; what happens in retail effectively becomes the shotgun bride to that union. It’s along for the ride, regardless.
Thing is, because NBNco is now basically a horrifically politicised machine, joined at the hip to Telstra, the ACCC now ironically don’t have anything left as a lever. Just to ensure there is more than one gorilla in the market.
Now where have I seen this before.. oh right. Supermarkets. Yes, that’s worked out quite well.
The numbers of people who need to “get into the sea” today, keeps increasing.
Previously there were only two major players (Telstra and Optus). I can understand why allowing a third should not substantially reduce competition, at least at the top. What positives do we see coming out of this deal?
Ah Neo-Liberal economic theory at its finest! Well done ACCC!
*slow clap*
I submitted something and was asked to attend a private ACCC event
I believe it was 14 POI originally (not that extra 2 really makes a difference in comparison).
“As of today, there is no such broadband provider in Australia — there is nobody to recommend. I don’t know who tell others that they should buy broadband services from. And that doesn’t represent a failure of market competition, I don’t know what does.”
I’m in the same boat, I’m also waiting for the inevitable phone calls where I have recommended iiNet or Internode and there will now be issues that need sorting out because TPG decided to tinker with profit margins.
I mean right now there’s only the bad boy Telstra in the room to recommend if forced for an answer :(
Would myrepublic be considered a mid rate network provider when it hits Australia? Or we have to wait and see? Would they also shake up competition? What do you think?
myrepublic is basically XIS from 2001
Unrealistic goal. Better off following in Opticomm path and being a wholesaler of services
They’re fibre only via NBN so at best will cover 22% of Australia (unless Labour manage some magic). Much like the other small fry NBN companies its unlikely to happen soon enough to matter for those with iiNet atm.
Seems to me this is a prime example of death by a thousand cuts. If the ACCC limits its judgement to the situation before versus the situation after acquisition, then there will rarely if ever be a finding of significant lessening of competition, because it is likely only ever going be a small incremental change caused by one acquisition. However, with each successive acquisition over time, the overall level of competition declines further, to a point where it becomes dangerously uncompetitive. The more meaningful approach is to take the situation at some baseline date, and to compare competitive situation as that time versus the forthcoming scenario. But somehow I doubt the legislation requires ACCC to do that.
We’ve gone backwards to the days of the gang of four.
We could only blame one person greed for this.
Very wise comments Graham — I agree with you entirely. In speaking to the ACCC, they are very able to defend their current judgement. But when you start to ask questions about the past decade as a whole, the answers are not as forthcoming as to what the hell happened since deregulation in 1997.
Two things will happen from this decision
– Regionalism of ISP brands by state and region. Like RACQ and RACV or Local bank society
– Cutting off the funds to those brands that pose a threat to main/prime brand
Well, if you do need a mid-range ISP to recommend, Amnet is pretty decent with good local support. Perth-based, but they resell iiDSLAMs so they should have enabled exchanges nationally I think. Although whether Vocus will keep them around is an open question.
The decisions need to be looked at in the context of what works for the political masters of the ACCC.
1000 pound gorilla companies with market power and the capacity to rent seek from the populace tend to be great political donors. Lean, highly competitive and cost conscious companies tend to have less spare cash on hand to toss into the coffers of our 2 major political parties. But I’m sure that is all just a happy coincidence of the brand of neoliberal economics our governments endorse.
I’m prepared to wait and see how TPG plays with more than just a low-end RSP, before piling on. As far as RSP competition, I don’t care how many big companies there are if there’s a bunch of smaller ones that are still able to compete. And there are, and have been – iinet didn’t buy them all up.
Is there anything that can still be done to lower the number of POIs?
Maybe the author of this piece should have dug deep into his pockets and bought iiNet himself. The cold hard facts are that people who beat up these stories will never put their money where their mouth is.
One thing that TPG is prepared to do is spend money on its own infrastructure, instead of whining and whining about some wholesale deal they get from Telstra, but sadly they cherry pick where they make that investments.
Not everyone has the drive to run an ISP, nor the desire. Telling people to put their money where their mouth is does not constitute a valid point as it puts belief ahead of business skill.
You are correct in that TPG are great at investing in their network (cherry picked or not). What they also have is a horrible reputation, wholly earned, for customer service and social conscience. They, as pointed out, do not innovate. The market has lost this now, which is a large factor in competition (apparently ignored).
Competition died much sooner than that, when the ACCC went with 120+ POI’s on the NBN making it pretty much impossible for small ISP’s to compete.
Your alarmist analogy is over the top. ACCC is making a judgement in good faith that the merger will not destructively reduce competition. You disagree with that judgement, which is fine. But what does that have to do with Bronwyn Bishop? There was no good faith in her decision to charge taxpayers for a helicopter joyride to a Liberal party fundraiser.
You’re certainly right about the Points of Interconnect though, I’m sure.
iiNet has been on the nose, WP nbn forums are drenched with horror stories about speeds, poor customer service and general malaise. Since the founder and Dalby left they have been treading water at best, the TPG takeover is a lifesaver. And why not have a Telstra/Optus rival?
How does having a ‘rival’ for Telstra (seriously Optus have been afk for many a year now and only really care about mobile imho) help Australian broadband consumers? Noting you don’t have to be TPG’s new size to ‘rival’ Telstra in price or product offerings … they’re generally more expensive with less to offer (other than foxtel and even that now is second rate) than just about anyone else out there.
They have this market share because they ‘are’ a govt company (or still hold that view in the unwashed publics eye’s … they are the safe bet that every Australian knows off). They are the default option.
It will probably make them competitive shareholder wise and profits wise but that doesn’t help the mere customer any.
Renai, I’d love to read more of your interview with Mr Simms.
Internet competition was killed with the $4.3b NBN (not a cent more) policy Conroy and Rudd took to the 2007 election, morphing into today’s $40+b NBNCo. No one was going to invest knowing a govt gorilla was going to overbuild 100% of Australia’s telecommunication network!
What retail products innovation is available with standardise wholesale offerings from a monopoly supplier where everyone must pay the same AVC & CVC charges?
The 121 PoI was to protect the existing competitive backhaul market that had served the industry and driven prices down. You’d had this replaced with a monopoly supplier with NBNCo track record?
Turnbull is making a big mistake defending overbuilding of wholesale access providers is a complete waste of money better used elsewhere and against his own directive for greenfields back in March designed to increase infrastructure completion.
OPENetworks Managing Director’s comments yesterday were spot on, then many of you have read exactly the same comments for years. The irony of their position is lost on anti-MTM (but we now accept Sat/LTE/FTTB/HFC) crowd.
“The 121 PoI was to protect the existing competitive backhaul market that had served the industry and driven prices down. You’d had this replaced with a monopoly supplier with NBNCo track record?”
121 POI wasn’t protecting competitive anything. Half the issue back then was Telstra was the only Fibre supplier to majority of exchanges and abused that terribly. When it costs more to send data internally around Australia then it does to cross the pacific ocean and back there’s something wrong!
121 meant only that Telstra and Optus get to keep their anti-competitive monopolistic advantages over the smaller ISP’s (ie anyone with less than 250k customers … which was all bar 4-5 ISP).
@simon The ACCC PoI discussion paper and advice to the then government in on their website. It is as I posted.
Wasn’t the $4.3b version a similar one to Malocolms? Didn’t that fall through when Telstra refused to come to the party on it? Given that, what option was there to “a monopoly supplier with NBNCo track record”? Telstra/Optus being given shit-loads of tax payer money and hope they actually build something ?
Overbuilding made sense with the “Real NBN” (as that was a true upgrade). It doesn’t when your overbuilding with FttN. Why overbuild FttB/Fttp (heck, even HFC) with an inferior medium? If NBN doesn’t build with FttP in my area, I’m not interested, I already have a superior system. I expect a lot of people will feel the same way (though I
amwas looking forward to trying HFC with iiNet).But I agree with the 121 POI comment, the ACCC royally screwed the pooch there.
i say crowdfund to launch a new mid tier innovator isp/rsp with a competive network called delim.geek.NET (sorry simon play on brand) and challenge m.2 and tpg and the 2 gorillas
Renai, did you get the feel when talking with Sims that he was thinking of a 4 pillar type system as we have with the banks?
TPG would be mad to lose the iiNet customers that they couldn’t win with the TPG brand. Surely it’s not too difficult to leave iiNet and Internode to innovate their own retail offerings whilst taking advantage of the economies of the same core network infrastructure. (TPG also own AAPT and Pipe these days)
The area that will be lost is the policy of challenging over reach in surveillance and copyright infringement. I don’t see how a subsidiary could have a different approach to its parent on that one.
Whilst there is some loss of competition I don’t see how the ACCC could do other than follow the rules.
On a brighter note the news (noise?) from myrepublic this week confirms that the Australian market holds some interest for new entrants. The sale of iiNet must make that more likely for a new player un-encumbered by their legacy offerings.
What is this guy on about… TPG ARE the competition in the ISP landscape of Australia. They’re just about the only job in town with better core network\speeds than Telstra and Optus, yet are forcing them to lower their prices to be competitive.
After they took over PIPE and had PPC1 to Guam, international bandwidth has typically been higher than with Optus or Telstra. Brilliant.
@Shawn PIPE and PPC1 look good until you see the Internode network diagrams.
Then you’ll see what a premium quality network looks and runs like.
PIPE and PPC1 is a detriment to the TPG customer but boon to TPG accountant. TPG has to use those links even if there are better out there in the market. This mandates that TPG traffic goes one way and one way only
http://forums.whirlpool.net.au/forum-replies.cfm?t=2432563&p=98#r1945
Well it seems ACCC have forced smaller competition of the Radar..
The biggest loss will be the loss of good service. If anyone believes David Teoh will leave the iiNet and Internode customer service teams intact well then I have a large bridge in Sydney harbour to sell you.
Rod should resign from embarrassment on the 121 POI decision alone.
Now add in the GFC bank mergers.
Might be a nice guy. Doesn’t have the nous.
I think TPG is being unfairly weighed up here. How can you compare them to Dodo? They’ve invested in infrastructure and drive lower prices by treating an ISP like a barebones utility, which is exactly how many people would prefer it. No value-add, no pushing of ‘benefits’, consistent pricing and adequate, if not stellar customer service.
Netflix and the like are going to drive the market towards your ISP being the tap, and the customer’s choice of OTT services being the norm. TPG’s ahead of the curve on this. Optus gets it and have started offering unlimited, contract free options of their own, even though there are clearly factions within that group that still attach every bit of value-add bloat they can conceive of.
Telstra will never, EVER get into that market. If you ask me, the rule of thumb in analyzing the aussie telco industry is: whatever Telstra’s doing, the opposite is the way the customer would prefer it.
Not really ISP in Australia could capitalise on thier branding and loyal customer base to launch into alphabet of companies
TPG owns hospitals btw
@Adam The comparison is they are both cut rate ISP’s. TPG obviously is a lot more successful than Dodo but they do operate under similar corp ethos (drive costs and prices down).
Isn’t that the ethos of all free market companies (at least till the get big enough to be a monopoly)?.
Think he is a little harsh on TPG – having used and researched all of the ISPs not sure if the so-called innovation of the other ISPs has provided any real benefit. In fact, ironically, when iiNet bought AAPT they killed any innovation they introduced such as unlimited downloads and an included music service. The important thing is TPG take care of the network (they provide most consistent streaming according to Netflix) and I’ve found their customer support to be pretty reasonable. iiNet has been instrumental in countering law suits over privacy I’ll give him that but ultimately failed.
Sorry, Kieran, you’re off base there. TPG lost their Netflix rating to iiNet. TPG over subscribe their network something like 60% compared to iiNet. They launch ‘unlimited’ plans to attract consumers who psychologically want the reassurance of not having to worry about allowance, and then get rid of the top 2% of downloaders (they cancel customer contracts as a breach of ‘fair use’). That’s also why iiNet canned those unlimited products – they’re ultimately deceptive in a market where wholesale suppliers charge retail ISPs metered access at potentially crippling rates. You can’t compare countries like Korea, Japan and Singapore that have a dozen or more international fibre competitors.
iiNet also have ultimately been extremely successful in their court battle with DBC – the judgement on damages is so limiting that it is unlikely that rights holders will ever bother pursuing Australians ever again, and even if they did the cost (and therefore risk) to each individual downloader is miniscule. I don’t know how you can consider that a failure.
That decision was down to judge not iiNet and applies to all ISPs involved in the action not just iiNET. The judge wanted to prevent similar action being taken here as in U.S. so kudos to the judge. Data retention and anti piracy laws will still come into effect and nothing any ISP can do about it apart from opt not of pass on cost to consumer. To the best of my knowledge iiNet has never offered unlimited plans and I never use less than 1TB per month (use that in a good week). TPG has never cancelled my connection though Exetel did service (though to be accurate it was because I was out of contract). To best of my knowledge there are two fibre providers in Singapore – Starhub and Singapore Cable Vision, both government owner and using shared infrastructure. Libs have killed our infrastructure so you’re right there is no comparison.
In brief, no, the ACCC actually strengthened Australia’s broadband competition.
BUT. The ACCC did remove state-based (regional) Service Provider competition. HOWEVER, TPG was ably assisted by a disastrous iiNet policy of buying up regional ISPs with no effort made to acquire or develop real hardware assets and infrastructure. iiNet expertly laid the groundwork for its own demise.
Amnet? Yes that seems to be the sole remaining WA Service Provider. OTOH, who wants to go with a Provider which cannot even give you a DIY VoIP solution as they are contracted to service that with dedicated IP phones, and cannot release the setups so you can plug them into your own router?
So competition is indeed stronger, if you accept that Telstra has been weakened. But while you can indeed have too much competition, in this case the deletion of WA as a home for regional SPs has weakened competition, but one would argue that this doesn’t matter since iiNet had (in effect) already ceased to be a regional supplier.
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