A Dark Day for the ACCC as it abandons competition in favour of a government monopoly
The ACCC has given its final approval to the payment of $800 million of taxpayers money from NBN Co to Optus in return for Optus decommissioning its HFC (cable) network and thereby not competing with the NBN’s monopoly service.
This is a very black day for the ACCC. This agency is established to promote and protect competition. For years, decades, it has railed against Telstra and its quasi-monopoly status in telecommunications and has called, again and again, for more competition.
And those calls have resulted in more competition, in open access to Telstra’s network and to broadband prices falling dramatically as telecommunications service providers installed competitive infrastructure around the country.
In every country in the world a key objective of telecommunications policy has been to encourage facilities based competition – in other words to ensure that wherever possible there is more than one wireline available for customers’ premises. In many markets that it is typically HFC and VDSL or ADSL over copper and often of course fibre optic cable as well.
But nowhere else in the world has a Government established a new fixed line monopoly and actually paid billions to dollars to the owners of the HFC networks not to provide broadband and voice. It is the very pinnacle of anti-competitive behaviour.
The Telstra part of this shabby arranagement was legislated so the ACCC really had no say in it, but they could have and should have blocked the Optus deal.
The reasons given by the ACCC are confused and contradictory.
They acknowledge “the HFC Agreement removes a potentially significant fixed line competitor to the NBN in Brisbane, Sydney and Melbourne. Competitive pressure from the Optus HFC network may have resulted in positive outcomes, notably prompting NBN Co to improve its performance.”
And then they say that in their view Optus is unlikely to extend or upgrade the HFC network (well what did you expect Optus to say when there was $800 million on offer) and that in any event over time the NBN would overbuild the HFC and provide a better service thereby putting the HFC out of business.
This ACCC reasoning is unbelievably confused and contradictory.
First, why would you assume as a given fact that the NBN will overbuild the HFC network? Sure they say they will, but if costs continue to blow out they may choose to act rationally and only build in areas that dont have good broadband today. And more importantly if you are going to get the crystal ball out, isn’t there just a teensy weensy possibility there of a change of Government which will take a very different approach to the NBN?
Second, even if the NBN did overbuild the HFC why would you assume that makes the HFC redundant? There are plenty of markets where fibre competes with HFC – the United States and Korea are two of many examples. In fact HFC competes with fibre in Singapore where the owners of Optus can be found. Even if fibre can provide the highest possible speed, that does not make HFC uncompetitive at the lower speeds the vast majority of consumers will want to pay for.
Third, why would the ACCC think it can foresee what technology upgrades are available for HFC anyway? Nobody would have predicted a decade ago that you could 80 mbps running over legacy copper systems as is now available with fibre to the node. The VDSL technology is getting better and better all the time. This is why we have markets to work out which technology will prevail, not bureaucrats picking winners.
Fourth, and this probably the most shocking aspect of the decision, if the Optus HFC network is just about clapped out, and if Optus will never upgrade it, and if the NBN will overbuild it and put it out of its misery as the ACCC asserts, why in heaven’s name is the Australian Government paying $800 million of our taxes to Optus to shut it down?
And who benefits from this transaction?
The public? Certainly not, they could have had a competitive market, they could have had Optus with an incentive to invest in the HFC or sell it to someone who would. And it is their $800 million that is being handed over to Optus.
The NBN Co? Well according to the ACCC they are paying $800 million to have an unviable, inadequate network shut down which they would have overwhelmed in due course without turning a hair.
Optus. You got it – it is Optus that has hit the jackpot. $800 million in cash.
Of course the truth of the matter is this. The NBN Co are not lunatics who shell out $800 million for nothing as the ACCC suggest. On the contrary, the HFC is an extremely viable competitor with the NBN Co and because its original capital cost was written off long ago, Optus could upgrade it for a modest cost which would enable it to undercut the NBN on price and provide equivalent services for most customers.
Recognising this the Government and the NBN Co decided to use our taxes to buy out this competition just as they have done with Telstra’s HFC.
A black day indeed for the ACCC and competition in Australia.
And now that this is done it leaves Senator Conroy and Julia Gillard free to focus on their next target – interfering with competition and freedom of speech in the print media.
20 Responses to “A Dark Day for the ACCC as it abandons competition in favour of a government monopoly”
Competition did not produce “competitive infrastructure around the country”. It did however produce islands of acceptably good broadband in large areas of capital cities and digital deserts in most other places.
Finally, the country gets a level playing field of universal high speed broadband where real competition in service provision can flourish.
Goodbye communications cartels and hello NBN.
It is, indeed, sad to see competition being outlawed in Australia, particularly in considering how competitive the 21st century will continue to be. Perhaps it’s of some value to draw attention to Macedonia, a little known country that apparently has already beaten Australia at this broadband game. Sad state of affairs, indeed.
http://www.ft.com/intl/cms/s/2/e6b2fd14-bd97-11da-a998-0000779e2340.html
[...] The following article is by Shadow Communications Minister Malcolm Turnbull, in response to an announcement by the Australian Competition and Consumer Commission yesterday authorising NBN Co’s contract with Optus. It first appeared on his web site. [...]
Hi Malcolm,
Based on the arguments you’ve presented here, is there any reason why you wouldn’t promote “facilities-based” competition in the power sector? Why don’t we have have competition in transmission and distribution, with multiple powerlines to each house?
Mr. Turnbull- While I agree that the $800 Million is a big kick in the teeth for the government to have to shell out (aren’t we fortunate it doesn’t come from the taxpayer…?), this is VITAL for the NBN. And the NBN is VITAL for Australia. The ACCC know that and THAT is why they have allowed this. AND why these points only JUST outweighed their normal mantra of “Increase the competition.”
“First, why would you assume as a given fact that the NBN will overbuild the HFC network? Sure they say they will, but if costs continue to blow out they may choose to act rationally and only build in areas that dont have good broadband today. And more importantly if you are going to get the crystal ball out, isn’t there just a teensy weensy possibility there of a change of Government which will take a very different approach to the NBN?”
Because they are mandated by the government to do so, Mr Turnbull, as you have argued against. It’s that simple- 93% MUST include these areas with HFC. The costs are LEAST likely to blowout in the metro areas, so these are the MOST likely to get done, as they also ensure the business case better than the regional areas. Yes, there could indeed be a change in government- which is EXACTLY the reason the ACCC have allowed the deal. They KNOW the NBN is the BEST deal Australians can get compared to the current weakling, useless thing that the Coalition currently have. (we have ASKED for details Mr Turnbull- Cost, timeframe, % covered, speeds likely and you STILL provide none) Hence, they are subtly pushing the political agenda to make it MORE difficult for the Coalition to scrap the NBN, as your leader appears to STILL want to do, contrary to your own comments recently.
“Second, even if the NBN did overbuild the HFC why would you assume that makes the HFC redundant? There are plenty of markets where fibre competes with HFC – the United States and Korea are two of many examples. In fact HFC competes with fibre in Singapore where the owners of Optus can be found. Even if fibre can provide the highest possible speed, that does not make HFC uncompetitive at the lower speeds the vast majority of consumers will want to pay for.”
Because, Mr Turnbull, it has ALREADY made HFC redundant. Uploads ALONE do that. HFC in this country is a pale shadow of what it is in Asia, Europe AND the US. Our nodes have MUCH higher contention ratios than the rest of the world, because it was built with ONLY TV in mind, to a small (relative to say, the US) population. HFC would need hundreds of MILLIONS invested in it to even EQUAL the NBN and both Optus AND Telstra have publicly stated they are not interested in this, even BEFORE the NBN. HFC will not be competitive to the lower speed customers….because in less than 10 years we’re not likely to HAVE “lower speed customers.” The results of the NBN tier uptake, as printed on Delimiter a few weeks ago, showing 83% of Australians are choosing 25Mbps and up show this already. It indicates we want higher speeds and in 10 years, that’s only going to be higher again. Therefore those competitive advantages at “lower speeds” on HFC disappear- AGAIN why the ACCC approved the deal in this light.
“Third, why would the ACCC think it can foresee what technology upgrades are available for HFC anyway? Nobody would have predicted a decade ago that you could 80 mbps running over legacy copper systems as is now available with fibre to the node. The VDSL technology is getting better and better all the time. This is why we have markets to work out which technology will prevail, not bureaucrats picking winners.”
There is NO question technology for HFC will get much better. Technology always does. But it’s ALREADY behind GPON and it will only get further behind. DOCSIS 3.1 isn’t even out of R&D yet and won’t even match GPON, let alone GPON10 and BOTH those are available now. It is a case of what the LIKELIHOOD of HFC being better or equal to GPON in ability AND price, when we all have GPON under the NBN- and the likelihood is; very small. Hence AGAIN why the ACCC have agreed to the deal.
I think the ACCC’s decision in this is actually one of the more concise victories FOR the Australian consumer. In ONE swoop it makes the deals between Optus/Telstra and NBNCo. VERY difficult to undo, ensuring a higher likelihood the NBN continues AS IS under the Coalition if they are elected (not your “NBN objective” Mr Turnbull). AND it also strengthens NBNCo.’s business case NOW so that the Coalition have LESS ammunition against the NBN publicly AND politically AND so equity in the private market is easier to come by- something the Senate Committee on the NBN has stresseed in the last 2 reports on the rollout, which you yourself are a part of.
This was a POLITICAL decision to help consumers long term- NOT a regulatory decision to help consumers now. It makes little to no difference to consumers NOW- neither Optus NOR Telstra were going to significantly invest in their networks. They haven’t in the last 15 years, why would they now after writing them off??
It ISN’T a very palatable deal in the context of competition. But it is VITAL for the NBN to continue and have the best chance OF continuing. And the NBN IS the best for consumers in the long term- The Coalition refuses to accept this, but our telecommunications market HAS FAILED the consumer.
The ACCC haven’t abandoned their ideals at all- they are simply seeing PAST the today and THROUGH the political veil to see the ULTIMATE goal being much, MUCH better for the Australian consumer than ANYTHING we have now.
Mr Turnbull, I URGE you and your party to stop this misleading and oftentimes untruthful campaign against the NBN. It may not be perfect, but it’s vast FTTH nature is what MAKES it so good, NOT what makes it a backwards dinosaur. USE your influence in Opposition to PERFECT the NBN, not tear it down! If I may be so bold Mr Turnbull, your party’s LACK of FTTH rollout in your plan (I use that word generously…) is the reason it IS a dinosaur.
James, I liek how you subtly overlook Mr Turnbull’s 4th point, by far the most important and in fact the only one that needs to be made. If you are correct and (quoting from your 3 points) “the NBN is the BEST deal Australians can get”, “[NBN] has ALREADY made HFC redundant”, “[HFC is] ALREADY behind GPON and it will only get further behind”, then why pay $800m? Surely, if you are correct, every Australian will pay the money for the NBN and there will be no need to buy out Optus, because they will be driven out of business.
You need to face reality. The only reason the government bought Optus out, is because it knew, that despite how awful their service is, Australian’s would prefer to pay less and keep HFC as opposed to paying more for NBN. If this were not the case, there would be no need to pay Optus anything. So the government decides to force us to purchase their product, at any cost they like, because they have bought out the competition. This is not freedom.
Troy- I did not cover point 4 because the 3 points I already made covered it. I did not ‘choose’ to miss it.
This deal was given the go ahead by the ACCC for 1 primary reason- in this political climate, where NBNCo can do NO right in any Coalition supporters eyes, the business plan of NBNCo MUST be the strongest it can be. The Optus deal was not included in the original corporate plan and yet the business plan still worked.
This deal was approved to quiet the Coalition over the business case and to make sure it is as difficult as possible to undo the NBN contracts. The ACCC knew EXACTLY what they were doing because they know the NBN is the best long term outcome for the country.
Optus will not spend any money on the HFC. They have openly stated this, so there would be no competitor. But they would keep their customers on it as long as possible which would cost Optus AND the consumer. A few hundred thousand people make little substantial difference to the NBNs business, but of course they would prefer them on the NBN. This is how the NBN is DESIGNED.
Your statement that no one will want the NBN if they have HFC is misguided- these people upgraded to HFC because the speed is faster. But it costs them more money than normal ADSL. Why then when the NBN rolls past, with BETTER speeds and for LESS money, would they NOT take it?? Other than some stubborn view that they didn’t want to seem to support the government by using government services.
Mr Turnbull himself has said Australians will one day all need FTTH. Every Telco on the planet is slowly and inexorably moving to FTTH. Even in the US where 50% of people have HFC. If we do the NBN now and everyone is on it, it pays for itself, so we the taxpayer don’t foot the bill AND no money will have to be spent on it for many MANY years, because the revenue will cover any upgrades in speed from 1Gbps-10Gbps-40Gbps and onwards.
Are you suggesting every expert analysis and prediction that we’ll predominantly want and need 100mbps by 2020 is wrong??
What is your problem- do you believe government should not provide essential services so that all may access them cheaply and efficiently? Do you believe somehow the government can manipulate us if we use this service? Do you believe we are manipulated by using Australia Post?
James, no you did miss point 4, and you are still missing it now. Why, if everything you say about the NBN is true, does the government need to spend $800m, to buy out Optus? Why? If they will provide a cheaper better service that everyone will need, why does it need to make sure Optus is not competing with them? I claim, that precisely because the government is willing to spend this money on buying Optus out, suggests that what the NBN will be, will not be as good or as cheap or as necessary as you (and others) claim.
Also,”[Optus] would keep their customers on it as long as possible which would cost Optus AND the consumer”. NO – this claim in simply false. No consumer would purchase anything voluntarily if the benefit to them did no outweigh the costs (unlike the NBN where I’m forced to buy it). And No business (Optus in this case) would provide any service to anyone, if they did not make a profit out of it (unless they are forced to by the government). So that sentence I quoted from you is wrong, and is also precisely what is wrong with your whole argument. I urge to strongly think about what I am saying, and not just stubbornly assume you are correct.
Troy- I think we are talking cross purposes, which is why you believe I am missing the point. You make the point- “Why spend $800 Million to migrate customers from Optus’ HFC network when the NBN will “migrate” them off it in its’ own time?”
My answer to this is 3 fold-
1- It is a constitutional requirement that IF you pay to remove a competitor (or buy them, out etc) you MUST pay the shareholders compensation for lost earnings on assets. This argument does not cover WHY it’s necessary for this deal- just why it is so expensive.
2- By removing Optus’ HFC network as a competitor to the NBN, the revenue stream of the NBN is increased. This increase in revenue stream enables the NBN business case to pay back loans faster and thereby enables customers to benefit from future upgrades faster. This is the same argument used for the Telstra deal, but the Telstra deal ALSO includes leasing of the ducts and exchange space over 30 years as well as USO agreements (the LARGER portion of the deal is these 2 as a matter of fact- $7 Billion). By increasing the strength of the NBN business case, the private debt equity which is required (and is already being asked about on the Senate Committee- of which Mr Turnbull is a part and asking this as well) can be searched out sooner, possibly reducing the requirement for the government to service as much debt through bonds. It also decreases the risk factor in debt equity, thereby making it more attractive to potential debt investors. All this means the NBN needs less government money- money which we AREN’T paying anyway because it is from bonds. We only pay the interest, of about $4 Billion over the life of the project, most of which is balanced against government bought bonds maturing. That which we DO pay will be paid back after the loans have been serviced anyway.
3- If Optus were allowed to continue operating the HFC WHILE the NBN was rolled out, there would be problems with profits- Example: We are seeing uptakes (unforced by migration) of 18-20% in the fibre zones of the NBN; higher in many areas. If we are generous to Optus, let’s say that upon the NBN rolling down the HFC street, with plans that are LOWER cost to the HFC, more reliable and faster, 10% of people left the HFC straight away. That means, of 400 000 people, 40 000 would leave. This decreases Optus’ ability to bring in revenue on an already tight revenue system (hence why they haven’t spent any money on HFC). Optus have lost 10% of their customers and, unless they can DECREASE their plan costs and INCREASE their quotas, they cannot match the NBN (See Optus’ cable plans and compare with iinet on NBN, or Exetel if you want the cheapest ones). This would mean, in these areas with the NBN AND HFC, they COULDN’T add many MORE people to offset this initial loss, because, as you have already stated: “No consumer would purchase anything voluntarily if the benefit to them did not outweigh the costs”- and the HFC is more expensive for less service.
So Optus lose customers, dipping their revenue and they can’t sign many new people on without losing MORE money. The HFC begins its’ tumble, whereby customers in particularly low sign up areas are migrated VOLUNTARILY off the HFC to close down those areas of HFC to save revenues. These consumers are put out and may have to pay costs associated with this and it is likely to be a drawn out and confusing process. This continues until the HFC system is fully shut down. IMO, less than 2 years after the NBN goes through (to account for contracts ending)
Your comment- “(unlike the NBN where I’m forced to buy it)” is both disingenuous and petulant- nobody is FORCING you to have an internet connection. You choose to have one. The same way you can CHOOSE to have the connection on the NBN. If you are happy without one, fine. But if you want one, you will use the NBN, which is (almost certainly) cheaper, faster and more reliable than what you are on now (I guarantee it). So you are neither forced onto the NBN (you can choose not to have a fixed line, as you can now) AND if you have the NBN it will be better and most likely cheaper than what you have now….you cannot have your cake AND eat it too with this argument.
I am not happy that Optus gets $800 Million out of this- they were part of the cable wars which resulted in huge amounts of money being wasted by both them AND Telstra with little gain for customers, or shareholders (also Australians)….and now we’re paying them. But since the money DOESN’T come from the budget AND it will be paid back by users of the NBN anyway….it’s an unfortunate result which makes no difference in price to the people using the NBN AND doesn’t charge the taxpayer but DOES result in the NBN being faster, cheaper (overall) and quicker to provide its’ goal to the nation.
It seems like only yesterday Senator Stephen Conroy, Minister for Broadband, Communications and the Digital Economy .. the grand ‘architect’ of Internet censorship in Australia, was giving his ex-Labor friend a $450k per year job – without the position ever being advertised! From The Australian, February 12th, 2010: “FORMER labor MP and apparatchik Mike Kaiser has described the selection process that led to him securing a $450,000-a-year job with the government-owned National Broadband Network Company on the recommendation of Communications Minister Stephen Conroy as rigorous.” “Mr Kaiser was elected to Queensland parliament in 2000 but did not recontest his seat the following year, after allegations he had been involved in electoral rorting in the mid-1980s.” No wonder he and Gillard want to gag the press. Surprised? See the article here: http://img560.imageshack.us/img560/87/ministerconroy450kjobfo.jpg
[...] morning, in a blog post on his website, Turnbull admonished the ACCC for this [...]
[...] morning, in a blog post on his website, Turnbull admonished the ACCC for this [...]
[...] The following article is by Shadow Communications Minister Malcolm Turnbull, in response to an announcement by the Australian Competition and Consumer Commission yesterday authorising NBN Co’s contract with Optus. It first appeared on his web site. [...]
[...] morning, in a blog post on his website, Turnbull admonished the ACCC for this [...]
The Optus HFC is the only fixed high speed broadband in my suburb and I can’t get connected thanks to this disgraceful deal. We’re not even on the planning board for NBN. Consumers suffer now because the ACCC refuses to stop playing politics and competition theory, going back to the days before mobile networks existed.
Terry, while I don’t know your situation, I would suggest this is incorrect. Have you actually had Optus tell you you cannot be connected BECAUSE of the NBN? That is not true if they have. They are being paid to migrate people from the HFC- why wouldn’t they want MORE people on it to get more money??
Are you in an apartment building, or is this a business connection? Optus will not connect either of them and it has been that way since it was built. Also, Optus are not connecting more people in many cases because the cable is shared and if too many people are on it, the speed drops to ridiculous levels- below what can be achieved on ADSL. Have a look at the Optus HFC thread on Whirlpool if you don’t believe me- some people get less than 10mbps at peak times.
It is very easy to blame the NBN- but the reality is the opposite. Optus are not signing people up because of their own reasons and HFC’s own weaknesses. The NBN is designed so people won’t have these issues.
Malcolm….I can’t see what the problem is with this deal.
Win for Optus…and a win for NBNCo which will make a healthy POI. Also a win for Optus HFC customers who will gradually be moved onto a genuine Fibre-Optic network with great contention and upstream speeds.
Time to stop whinging and promulgating false and/or misleading information…and get on board the NBN!!!
Where to begin, Malcolm….
“And those calls have resulted in more competition, in open access to Telstra’s network and to broadband prices falling dramatically as telecommunications service providers installed competitive infrastructure around the country.”
Open access to Telstra’s network? HaHaHaHaHaHa. You must have a strange definition of “open”. There’s little access to ULL, very high prices, restrictive terms, little backhaul competition, the list goes on….
Service Providers installing competitive infrastructure around the country? HaHaHaHaHa. You mean in about 400 of Telstra’s 5000-odd exchanges.
These are two examples of how the Coalition’s broadband policies delivered Australia bottom-of-the-ladder broadband infrastructure. Seems you still haven;t learned from these errors.
“In every country in the world a key objective of telecommunications policy has been to encourage facilities based competition”
Again, rubbish. In fact, there are a large and growing number of countries currently installing fibre networks where Governments or (usually government supported) Telcos are creating open-access monopolies just like our NBN, because it’s clearly the most cost effective and logical way forward. Singapore, Israel, Qatar and NZ are prime examples. In the UK, they Govt tried to generate a competitive tender process for a fibre rollout, but the competitors to BT gradually withdrew leaving BT to roll out the monopoly network.
Even your own quasi-policy of FTTN is still a monopoly for the last mile, because, as Optus said years ago, nobody would be stupid enough to try and overbuild Telstra competitively. That’s why nobody has for the last decade.
You criticise the ACCC for saying And then they say that in their view Optus is unlikely to extend or upgrade the HFC network
Well, they haven’t extended it for a decade. Why would you think they would do so now? My cousin’s blind dog knows that Optus won’t be extending their HFC, NBN or not.
Lastly -speaking of confusion and contradiction- comes your rather bizarre points about the NBN overbuilding the HFC. You spent most of the blog arguing for morefacilities-based competition. However you then say that it would be irrational for the NBN to overbuild HFC. So which is it Malcolm? Does facilities competition make sense, or is it irrational?
Malcolm.
Many readers of this very interesting piece would be appreciative of it being published and Thank-You for it.
I still have major concerns re the government “passion” to see something rolled out which is flawed especially if something was to happen to the NBN Co.
Isn’t it a fact that there is some mention of both Telstra & Optus retaining their infrastructure if something was to happen to the NBN Co?
I find it very questionable that the ACCC again fails Australians with a “flawed” response/decision and the ACCC needs to be asked for a Please Explain.
I remember when Optus first came on the Australian scene when it purchased a satellite when Telecommunications was deregulated. My thinking cap had to be applied on this item but more importantly, I remember when Optus technicians started rolling out the overhead cabling across Brisbane.
Technology has advanced so rapidly that for me personally, I’m satisfied with what products I have and more-so, internet high speed access. What is annoying is that customers of both Telstra and Optus don’t get to have a say even though, we do have the choice of cancelling out a contract if there’s one in place with either of those two companies.
I do support a mix of both cabling and wireless or even satellite but; why duplicate when it’s all about the needs of the ALP and Minister Conroy?
Perhaps, the Federal Opposition’s front-bench should have a close look at whether Competition Policy is in need of a major review and even the ACCC?
so i am just wondering if i start a business and dont run to speed can i get 80 mill…from the suckers in this country…mmm wonder what i could start up….