In August last year the Australian Competition and Consumer Commission did something highly unusual. It lifted some regulation from Telstra. Just before Christmas, however, the Competition Tribunal decided unshackling Telstra, even at the margins, was too dangerous and overturned the commission’s decision. Thankfully Telstra has today filed a challenge with the Federal Court.
It is rare that the ACCC has agreed with Telstra on anything. It is even more novel that the commission would contemplate rolling back any of the masses of regulation that bind Telstra. The history of the sector is one of ever more intrusive and intense regulation of the dominant player.
The decision in question was about wholesale access to Telstra’s copper network. In August last year the ACCC granted exemptions to Telstra from its obligation to supply wholesale line rental and local carriage services to competitors.
The exemptions were, however, quite tightly focused. They would only apply in those parts of metropolitan areas where there were four or more unconditioned local loop service-based entrants or where the exchange service area had at least 14,000 or more services in operation.
Essentially the commission took the view that where there were at least three competitors to Telstra in an exchange service area with infrastructure of their own to access Telstra’s unconditioned local loop and therefore with the ability to offer broadband and other services, including voice calls, there was no need to force Telstra to offer a wholesale service that allowed competitors to simply rebadge and resell its local and long-distance call services.
Alternatively, if the exchange service area had enough services in operation, the threat of competition would be sufficient to discipline Telstra.
The commission’s position was effectively one that favoured investment over synthetic competition; one that would encourage competitors to install their own equipment, attack more of Telstra’s value chain and become less parasitical and less dependent on the regulator to make sense of their business model.
The tribunal, however, wasn’t convinced. It wants hard, empirical evidence that there are new entrants to the market, that they are taking share from Telstra, driving prices down and broadening the range of services to consumers before it will unshackle Telstra. It doesn’t believe having competitors is sufficient but wants to see the evidence that they are competing, having an impact on Telstra and generating consumer benefit.
On the one hand we have the ACCC demonstrating a belief that where there is a sufficient number of competitors there will be competition and long-term gains for consumers. On the other the tribunal doesn’t trust the concept of counting competitors as evidence of competition, relying rather on maintaining the regime that regulates Telstra to the nth degree.
Telstra says that in some exchange service areas there are up to eight competitors with their own infrastructure installed in Telstra exchanges. It beggars belief that you could have that many competitors without generating meaningful competition and consumer benefit.
There is a view that the over-reliance on regulation – Telstra is far more tightly regulated today than it was at the start of the "deregulation" of the sector more than a decade ago – has deterred investment, inhibited facilities-based competition and bred a sector that has become dependent on arbitrages created by the regulator because that is the best-returning form of activity.
Overseas, there is some evidence that lightening the regulatory burden and making regulated access less attractive encourages investment in competing infrastructure and therefore creates a path that in the longer term will breed fully-fledged competition without undue regulatory intervention.
In some respects arguments about access to Telstra’s copper network could become redundant relatively quickly, given that its wires would be cut if the new National Broadband Network is built.
The notion that a competition regulator – or, in this instance, the body to which the industry can appeal – should have some faith in competition, is however, worth fighting for.
The ACCC took the view that where there are enough competitors in one place there will be competition. If the tribunal’s view prevails, it would do nothing for real competition or the long-term interest of consumers.
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