Telstra points to telco policy mess

The issue of NBN’s wholesale pricing for retail service providers is made more complex because NBN has averaged pricing across cities and regional areas in order to deliver a $7 a month subsidy to regional consumers while ADSL services did not cross-subsidise the bush.

In the midst of this confusion, Mullen added his voice to that of Vocus chief executive Kevin Russell, who last week slammed the NBN for using its low cost of capital from government to win as many business fibre connections as possible.

Russell said it was strange NBN was involved in an overbuild of existing fibre infrastructure for business customers before it had completed its primary purpose of building a wholesale broadband network for retail customers.

“If you go into the communications room in the basement of 452 Flinders Street (the Vocus office in Melbourne), you’ll find no fewer than six fibre providers that have invested capital to provide competitive services,” Russell said.

“And recently, NBN became the seventh. Is this really where NBN should be spending taxpayer dollars?”

But Communications Minister Paul Fletcher has endorsed NBN’s move into the enterprise market. He said last month it was a core part of NBN’s mission.

Last week Sims endorsed NBN’s move into business broadband.

“Market feedback suggests that NBN Co’s entry into the wholesale enterprise market has increased competition, particularly in areas where Telstra is the only other fixed-line infrastructure provider,” Sims said.

Fletcher also would like to see increased infrastructure competition in fibre networks.

“Just to be abundantly clear, the government has no plans to revisit the commercial agreements or migration arrangements in the fixed-line footprint,” he said in a speech last week. “That train has well and truly left the station.

“But it is equally clear, the decisions originally made to support a monopoly broadband network have had significant consequences for market structure and competition. Since the NBN was announced, investment in fixed-line, last-mile infrastructure by the private sector has fallen sharply.”

Telstra chairman John Mullen says Australia has some of the highest wholesale broadband pricing in the world. David Rowe

The minister’s speech has caused confusion because former telecommunications minister Malcolm Turnbull banned fibre providers such as TPG Telecom from extending their networks to offer fibre to the basement services for retail customers.

Another point of confusion in the telco sector is the ACCC’s approach to competition in mobiles.

ACCC’s ban on the merger of Vodafone’s Australian business and TPG Telecom was because of concerns that a three-player market would lessen competition. Sims says there is a “real chance” TPG will build a fourth mobile network if the merger is not allowed to go ahead.

TPG founder David Teoh says he won’t build a fourth network. The final determination of the ban relies on federal court judge John Middleton, who presided over a three-week trial and is due to hand down a decision in February.

Telstra chief executive Andy Penn warned on Tuesday that most telcos in Australia had a return on invested capital below the cost of capital. He hinted this was because no company could make any money from selling retail services on the NBN.

“Unless the economics of the industry are allowed to improve, the consequence will be lower investment and poorer quality networks similar to what you see in many international markets today. Competition is intense in our industry in both fixed and mobile,” Penn told the Telstra annual meeting.

Penn clearly disagrees with the ACCC view that Australia’s mobile market is not competitive and needs a fourth player.

“The last few years, in particular, have seen increasing data allowances and other inclusions for customers as well as falling prices,” he said.

Opposition communications spokeswoman Michelle Rowland added to the pressure on the ACCC when she told a conference in Melbourne the Australian mobile market was delivering good value for customers.

She appeared to back the Vodafone merger with TPG when she said the mobile industry needed “optimal scale, infrastructure synergies and balance sheets capable of delivering ongoing investment”.

In his speech to the Telstra annual meeting, Mullen said NBN’s move to sell fibre connections to big business seemed inequitable and he repeated an earlier criticism that NBN’s wholesale pricing was too high. He said Australia had some of the most expensive broadband prices in the world.

He said NBN’s move to compete with Telstra and others for fibre connections to business was “a waste of collective resources”, delaying investment in rolling out consumer services and duplicating existing high-speed fibre for no service or speed advantage.

However, Mullen should be careful what he wishes for.

If the government were to revisit the entire structure of NBN and its commercial relationships with Telstra it could threaten infrastructure payments from NBN to Telstra, which are likely to rise to about $1 billion a year.

The criticism of NBN’s move into the enterprise broadband market ought to prompt NBN to be transparent about the amount of money it earns from business customers. Its competitive pricing is obvious from the deals it has done with Coles and Woolworths.

Under previous coalition governments before the arrival of the NBN, telecommunications policy was designed to encourage private sector investment in fixed line and mobile networks and infrastructure competition.

This policy worked brilliantly in mobiles and Australia’s formidable leadership in 5G is a tribute to light-handed regulation. The ACCC’s competitive pricing of access to Telstra’s network nurtured the growth of disruptive companies such as TPG, which offered rock bottom retail broadband packages.

When the coalition inherited the NBN it reworked its technology mix and accepted NBN’s commercial imperative to earn a return. In order to achieve that return the government blocked price competition from alternative fibre providers like TPG.

While Mullen and Penn are critical of NBN’s pricing and its push into business fibre the fact is Telstra has increased its market share in broadband as a result of the NBN roll-out.

Its dominance of fixed line broadband is increasing under the NBN and the ACCC’s attempt to squash the Vodafone/TPG merger will help Telstra build market share in mobiles.

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