A Dark Day for the ACCC as it Abandons Competition in Favour of a Government Monopoly

July 20, 2012
Media Releases

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.

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