Telstra and the illusion of telco competition

By the only objective measures that matter to them, Australian consumers are entitled to conclude regulation of Australia’s fixed line communication networks has been a terrible failure.

It’s a fair bet the man or woman in the street would, if asked, have no hesitation in saying industries where one business has market power should be regulated to stop profiteering, ensure reasonable prices, and encourage access to services.

It’s also pretty likely they would understand the best way to achieve this is to arm them –consumers – with the power of competitive choice.

But, when it comes to pricing communications services, no one is asking them.

The huge and growing pricing disparity they face compared to consumers in the rest of the developed world has no bearing on the ACCC’s pricing regulation.

Rather, in the face of growing international disparity, the ACCC proposed this month to leave fixed line wholesale prices basically unchanged for four more years.

Last month, about 50 leading researchers, policy makers and analysts and regulatory professionals in Australia communications came together in Canberra under the Vision 2030 banner, convened by the Competitive Carriers Coalition, to discuss how Australia’s digital economy could be kicked up a gear.

The motivation was simple – a belief the only way Australia will maintain its standard of living into the middle of the 21st century was to become a world leading user and integrator of new communications and digital technologies, and an acceptance that it was everyone’s job to contribute ideas to help get there.

Among the biggest barriers to realising that ambition to emerge on the day were the most prosaic –internationally uncompetitive retail prices for fixed line services, and the unbalanced, uncompetitive industry structures in those same regulated markets.

This was basic follow-the-bouncing-ball economics as speakers laid out their observations.

  • Frontier Economics analysis of OECD research showed retail prices for Australian fixed line services are the highest or near highest across almost all service categories.

  • Vodafone showed that Telstra’s profits per capita are double or more those of the equivalent incumbent telcos in the EU and New Zealand markets.

  • Optus showed the prices set by the ACCC for access to monopoly networks for simple voice services are 10 times and more regulated prices across Europe, and price for access to deliver competitive broadband double and more.


And, thanks to the massive leg ups Telstra has received from successive governments to convince it to participate in the National Broadband Network rollout, Telstra looks like being in an even more dominant position in areas where the NBN has rolled out.

Yet the ACCC determinedly rejects these facts as irrelevant to the regulatory decisions it is making right now about future prices.

The terms and boundaries of the Commission’s inquiries seem dictated by Telstra’s representations, to the point where the ACCC has seemingly accepted proposals from Telstra that it change some fundamental elements of its methodology only four years after telling the industry these matters were settled. The result is no fall in prices.

If the ACCC now used the same approach it used in 2011, it is likely consumers would have stood to gain from wholesale price cuts above 10% and closer to 20%.

In 2011, the Commission assumed up the value of parts of Telstra’s network to hold access prices steady. Again, without that decision, prices would have fallen.

It is tempting to conclude the ACCC’s overriding objective is to keep prices the same. After all, competitors lose nothing and it won’t have to face the full force of a screaming Telstra.

But no account is taken of Telstra’s profitability, international price comparisons, the state and the structural imbalance and uncompetitiveness of the industry, or even the impact on consumers and future prosperity of international uncompetitive prices.

This seems completely and curiously at odds with reported comments by ACCC chairman Rod Sims in relation to the grocery industry. Sims reportedly said the profits of Coles and Woolworths were among the highest in the world. This, he said, resulted from a “very cosy duopoly”.

How then, is it not the Commission’s conclusion that Telstra’s gilt-edged profitability is not the result of a very cosy monopoly? How can this be something the Commission takes no account of, let alone responsibility for, when the Commission has always regulated fixed line communications markets, unlike the grocery market?

The Commission can lift its eyes in its final pricing decision in June, rise above the temptation to appease Telstra, ensure consumers are not double charged for Telstra’s NBN $5 billion compensation payments in the next four years, and refocus on its mandate to promote competition to make markets work for everyone.

If they don’t, consumers, once they become aware of how disadvantaged they are compared to almost every other developed country in the world, are likely to demand something more than an explanation from the ACCC.

David Forman is a director of the Competitive Carriers Coalition and convenor of the Vision 2030 initiative. He is also the government relations head for Macquarie Telecom.