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Monday, 15 November 2010
Page: 2238


Mr TURNBULL (4:43 PM) —At the outset, let me restate our position on the National Broadband Network, the construction of which is the context for almost all of the provisions in the Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2010. The coalition is committed to making fast and affordable broadband available to all Australians, regardless of where they live. We believe that the achievement of this goal will be assisted by a competitive telecommunications sector and recognise that competition would be enhanced by the separation of Telstra’s customer access network from its retail business. Those apparently then are the objectives of all members. The challenge is to realise them in a way that minimises the expense to taxpayers and ensures Telstra shareholders are treated fairly and equitably.

This bill involves a number of changes to the legislation which are objectionable and a number of changes which are desirable. While there are many things in this bill that we agree with, it is, like the curate’s egg, good only in parts. The NBN scheme involves the overbuilding and dismantling of the entire Telstra customer copper access network. It involves $43 billion of taxpayers’ money being invested to create a government owned fixed line monopoly. This monopoly will be reinforced by contractual agreements that prevent Telstra from using its HFC network—that is its pay television network, which is not going to be decommissioned—in other voice and data services in competition with the NBN. So part of the deal is that, purely for the purpose of underpinning the already dodgy economics of the NBN, the government is entering into a contract with Telstra which will preclude Telstra from competing with the NBN using its HFC network. The government looks forward, we know—because it said so—to doing a similarly anticompetitive deal with Optus.

The objective is to not only create a government owned business monopoly but entrench it using the power of the parliament to eliminate and inhibit competition. That is turning back more than 20 years of economic reform in Australia. It is a reversion to the pattern of state governments in particular owning businesses and using their governmental and political muscle to protect those inefficient monopoly businesses. That is one of many reasons why this proposal needs to be carefully analysed and why it should, as we have recommended and indeed as the OECD has recommended, have a cost-benefit analysis of it undertaken by the Productivity Commission.

Telstra shareholders are going to get $11 billion of after tax value for this. As a consequence, the Telstra board supports the deal. But our responsibility here is to the taxpayers of Australia. I have said a number of times that in many respects this NBN proposal represents a conspiracy against the taxpayers. We have vendors that want to sell equipment. We have contractors who want to dig ditches and lay fibre. We have telcos—some of them, not all of them—who see this as a great business opportunity and certainly support the end to the vertical integration of Telstra. We have Telstra’s management seeing this as a home run for their shareholders. David Thodey, the chief executive of Telstra, sees Stephen Conroy as playing Alan Bond to Thodey’s Kerry Packer. It is an absolute home run for him. No doubt, he hopes that at some point the NBN will fail for whatever reason and he might be able to, like Kerry Packer, buy it back for a fraction of the price.

Our job here is to protect the interests of the taxpayers. The policy objective should be as follows: to deliver universal and affordable broadband across Australia. That is number one. We should do so in a way that imposes the lowest net cost to Australian taxpayers. We need to ensure that we have an industry that is truly competitive. Thus we need to end the vertical integration of Telstra, but we need to do so in a way that is fair to Telstra shareholders. The primary objective is for universal and affordable broadband and the other secondary objectives support the primary one.

The question is: is this the best way to achieve that objective? It is certainly the most expensive way. In fact, it is difficult to imagine a means to a policy objective that could be more burdensome on the taxpayer than the one proposed here with the NBN. A more prudent approach, and one that has been recognised as entirely feasible for many years, would be to see the Telstra customer access network transferred into a separate company owned initially perhaps by Telstra’s current shareholders.

This new network company would provide wholesale carriage services to all retail carriers on equal terms. Vertical integration would be at an end. This new network company would be a regulated utility with pricing guarantees that ensured that it received a reasonable return on its capital investment. It would know that as it invested more in its network it would receive an appropriate return. This is the model used for utilities used in other sectors such as water, gas and rail. This new network company would be mandated to rectify black spots in the cities and underserviced areas in regional and remote areas to ensure that all Australians had at least 12 megabits per second broadband. Schools and hospitals would be delivered faster broadband where it is not already available. As honourable members know, for the most part it is. Where this could not be done economically because of geography or historical network design choices, a transparent subsidy would be provided.

Such an approach would achieve all of the policy goals referred to earlier. It would minimise the financial burden on taxpayers. It would ensure that our existing network was upgraded and improved over time in line with the demand for faster broadband. It would ensure that all Australians had access to broadband at a speed that is more than capable of handling the available applications. The government will say that anything less than fibre-to-the-home at 100 megabits per second is inadequate. Picking technologies is hard enough if you are in business. If you a government, you are sure to fail. Our policy for universal and affordable broadband should be technology agnostic. As for higher speeds, where they can be provided, no doubt they will be. And they already are being provided by the market. There is no evidence that households will pay a significant or any premium for such higher speeds, however. That has been the experience of telecommunications companies here and around the world.

I note that in the United States the minimum broadband target is four megabits per second. We should never forget that speed is only of value to a customer to the extent that it enables that customer to use the particular applications that they want to. The 100 megabit per second fibre-to-the-home objective of the government has become little more than a religious devotion utterly unconnected from economics or market reality. To justify a $43 billion taxpayer investment, as the minister has done, on the basis that it will be used ‘in 20 years time for things that we do not know about’ is reckless in the extreme. In 20 years time most of the equipment in the NBN will have been replaced, some of it several times.

The refusal of the government to subject this NBN to a rigorous, independent cost-benefit analysis represents one of the most disgraceful abdications of fiscal responsibility in our nation’s history. Never has so much money been spent with so little scrutiny. I will not repeat to the House the many statements made by Labor ministers about the need for rigorous cost-benefit analysis of projects, but I remind the House that only two years ago the government established Infrastructure Australia with the express purpose of assessing major infrastructure projects. As part of that process of assessment, Infrastructure Australia stated in its 2009 guidelines for better infrastructure decision making:

… all initiatives proposed to Infrastructure Australia … should include a thorough and detailed economic cost-benefit analysis … In order to demonstrate that the Benefit Cost Analysis is indeed robust, full transparency of the assumptions, parameters and values which are used in each Benefit Cost Analysis is required.

Let me now turn to the detail of the legislation. As I said earlier, like the curate’s egg it is good in parts, but it also seeks to utterly subvert the normal operation of the Competition and Consumer Legislation Act, better known as the Trade Practices Act—the key national law protecting the interests of consumers with regard to this proposed $11 billion NBN-Telstra deal. It places a gun at the head of Telstra shareholders in the crudest possible fashion, with the government threatening to pull the trigger unless the firm separates the retail business and customer access network and migrates its customers to NBN Co. in the way the government has demanded. We oppose those measures. Therefore, we will be seeking to amend the bill in six areas, which I will discuss in greater detail shortly.

Firstly, there is the matter of the separation of Telstra. One of the key objectives of the bill is a proposal by the government to require Telstra to voluntarily bring forward to the ACCC a plan to structurally separate its network and retail businesses. If it does not, or if the structural separation undertaking is not accepted, the current form of the bill requires Telstra to functionally separate—that is, divide its network and retail business units so that they operate at arm’s length. The bill essentially provides ministerial discretion to prevent Telstra from bidding for next-generation 4G wireless spectrum via a disallowable instrument. It also provides ministerial discretion to compel Telstra to divest its HFC pay television cable network and/or 50 per cent interest in the Foxtel pay TV business. The gradual decommissioning of the Telstra copper customer access network and migration of Telstra customers to services provided over the NBN, contemplated in the agreement, would be accepted by the minister and the ACCC as a valid structural separation plan. The minister would have, under this legislation, the discretion to direct the ACCC as to the criteria to be used in deciding whether to accept a separation plan.

As we all understand, Telstra’s vertical integration has been a contentious issue since the 1990s. Various options for separating Telstra’s fixed line network from its retail and wireless businesses have been canvassed, and I discussed that earlier in my remarks. We support separation. We recognise that it would enhance competition. We have seen separation work effectively in other utility industries, such as energy and railways. We have also seen it improve telecommunications outcomes in other countries, including the UK and Sweden. Many people, both inside and outside Telstra, have argued for more than a decade that it was actually in the interests of Telstra shareholders to allow this to happen in order to promote greater shareholder value for Telstra. The decision of Telstra management over a long period of time to oppose this root and branch was, in the views of many, unwise. Given Telstra’s current share price, it is hard to argue that the existing approach or the previous approach has worked well for the company’s 1.4 million shareholders or for its thousands of employees and millions of customers.

So, as I said earlier, we welcome in principle Telstra separating into retail and network businesses. But we do not believe that such a separation should occur under duress or via a deal that is possibly in breach of the nation’s competition laws or via the creation of a new and vastly wasteful government monopoly. Any such restructuring should be on terms such as those I described earlier which are fair to Telstra shareholders and impose no greater costs on taxpayers than are necessary. The NBN policy of the government does achieve structural separation, but at enormous and unnecessary cost to the taxpayer and via the establishment of a new government owned fixed line monopoly with which there will be no competition. One of the paradoxes of the current debate is that this structural separation of Telstra’s network is cited by its competitors and the government as the greatest benefit of the NBN, yet there is absolutely no need to build a new network to achieve it. If vertical integration is the problem, then the NBN is using a sledgehammer—an extraordinarily expensive and elaborate sledgehammer at that, paid for by the taxpayer—to crack a nut.

The second key objective of the bill is to exempt the proposed NBN-Telstra agreement—and no doubt NBN deals with other carriers such as Optus—from the normal operation of the Competition and Consumer Act, formerly known as the Trade Practices Act. This statutory authorisation for what otherwise would very likely be viewed as an anticompetitive arrangement is based on the government’s argument that the proposed NBN-Telstra agreement is in the national interest. I say ‘anticompetitive’ because the deal envisages Telstra being contractually required to decommission its copper network, an asset that still has substantial if lessening economic value, as the NBN is rolled out to ensure that the latter enjoys a fixed line monopoly. It also envisages Telstra—and potentially Optus—being contractually forbidden from offering broadband and voice services over their pay TV networks, which pass about 30 per cent of Australian homes and could be tuned up to deliver speeds of over 100 megabits per second today—as, indeed, the HFC network of Telstra in Melbourne already has been tuned up to deliver.

I recognise that it will be argued that, as the fibre-to-the-home overbuild progresses, the economics of the copper network will deteriorate to the point where it makes more sense to decommission it. That may be so, but the HFC network will not be decommissioned and will continue to provide pay TV services for many, many years to come. There is absolutely no justification for the ban on competition from the HFC network, other than to protect the economics of the NBN fixed line monopoly. The government’s approach here is without precedent anywhere in the world.

I was reading today a discussion delivered by one of the telco partners of Gilbert and Tobin, Mr Pascoe, whom at least one honourable member would be familiar with. He said, ‘The reaction of other countries to the NBN proposal was one of raised eyebrows and growing concern.’

Indeed, only the other day one New Zealand businessman who is involved with that government’s fibre rollout, where the government is spending $1.5 billion in total to support a public-private partnership to deliver fibre around New Zealand, said to me that the big difference between New Zealand’s approach and Australia’s was that, in New Zealand, the business plan came before the investment, whereas we seem to have made the investment decision and still have not got the business plan together. It is really becoming quite an embarrassment. The strictures we saw in the OECD report just underline how unprecedented the government’s approach is. Nowhere else in the world is the government proposing to force a carrier to dismantle its copper network just to maximise revenues and eliminate competition for a government owned monopoly, regardless of the economic value of the existing network.

Nowhere else in the world is broadband over copper, such as ADSL or VDSL, effectively being banned, regardless of whether it provides service of a quality and price that customers want. Nowhere else in the world is competition for fibre from HFC being banished, again, simply to prop up a government owned monopoly. On the contrary, broadband and voice delivered over HFC cables is the main form of facility based competition for copper and optical fibre in most countries in the world. Why on earth would this parliament believe the Australian government has this right and every other country in the world has it wrong? The OECD, as I have noted, is also critical of the way in which the NBN will be structured so as to be the sole provider of fixed-line communications to Australian households. ‘Facilities based competition is of great value,’ the OECD writes in its economic survey of Australia, and I quote:

Multiple empirical studies have stressed the value of competition between technological platforms for the dissemination of broadband services …

And further:

Moreover, such a monopolistic incumbent—

such as the NBN—

could forestall the development of, as yet unknown, superior technological alternatives …

Passage of this bill is not essential to completion of the Telstra-NBN Co. deal. It is not essential to the completion of the NBN. In fact, there is no need to do a deal with Telstra to have the NBN. That was certainly the government’s policy and, indeed, what the McKinsey implementation study also claimed. Telstra clearly believes it has pulled off an excellent deal here on the effective sale of its customer access network to the government. But the competition laws are not about protecting the interests of Telstra’s shareholders or about maximising the revenues of the NBN Co.—a government owned monopoly—or about permitting the Labor Party to turn back more than 20 years of economic reform; they are about protecting consumers and promoting competition. This deal, and the competition laws, should be dealt with by the ACCC, just like any other. It is also important to bear in mind that, when we talk about universal affordable broadband, there is a digital divide in Australia. Overwhelmingly, that divide is marked by income. Forty-three per cent of households with an income under $40,000 a year have internet at home. That figure rises to 76 per cent in households with an income of between $40,000 and $80,000 a year. In households with an income of between $80,000 and $120,000, 89 per cent have the internet and, in households with an income over $120,000, 95 per cent have the internet.

The difference between the number of metro households and regional households having internet access at home is considerable—76 per cent in the cities, 64 per cent in the regions. But, overwhelmingly, the biggest marker of the digital divide is household income. The NBN will not bring down prices; it will put them up. It is going to be a massively overcapitalised, government owned monopoly with no competition. There will be an inevitable pressure on the management of the NBN to charge more. Indeed, notwithstanding that, over many years, we have seen prices of telecommunications come down again and again year after year, in the McKinsey study we see, as expected, that the wholesale price for access to the NBN will increase in real terms every year for the next decade.

That is a reversal. We have had telecommunications costs coming down, increased access to the internet but not enough to deliver anything near ubiquitous penetration among low-income households. So affordability is a big issue. What the government is doing is creating a scheme which will actually make the internet less affordable, so it is defeating one of the key objectives.

The reality is that if you have an investment of this kind you will get one of two things or, more likely, both. You will get an inadequate return to the shareholder—in this case, the Australian taxpayer—or you will get the monopoly extracting monopolistically high prices for its services as a means of recovering on the investment. The truth is that, given the scale of this investment and the nature of the monopoly, you will probably get a bit of both. It will be a classic lose, lose—a lose for taxpayers and a lose for consumers.

The third key area that the bill addresses is the regime governing competitive access to facilities such as Telstra’s customer access network. This is really designed to deal with the interim stage before the NBN is built. The existing telecommunications access regime is widely seen to have been only partly effective, since Telstra has frequently been able to use the negotiate-arbitrate framework to delay and, in some cases, frustrate seekers of access. Telstra’s board and management have responded to the regime in ways they believed maximised value to their shareholders, although in this regard I note and welcome the, if you like, less abrasive approach, the less confrontational approach of the current management. Telstra’s competitors have accused the company of gaming the access regulations and, as a result, have sought a more predictable and less contentious regime.

The bill amends the access regime included in the Competition and Consumer Act away from ‘negotiate/arbitrate’ as a model for declared services to a new one where the ACCC sets upfront price and non-price terms for declared services for periods of three to five years. This has been described as a ‘set and forget’ model to provide increased certainty for access seekers and carriers. But, in providing more certainty for Telstra’s competitors, we need to be careful not to tip the balance too far and unfairly limit the scope for the company to appeal if the ACCC gets it wrong. Therefore we will be moving amendments which would restore merit reviews of ACCC part XIC decisions and reinstate the ACCC’s procedural fairness obligations when issuing a competition notice under part XIB.

Finally, the bill reinforces the existing consumer protection safeguards in the industry, including the universal service obligation and the customer service guarantee. While these changes place an increased burden on carriers, the coalition supports them and will not be moving amendments in this area. In particular, we believe it is critical for consumer protections to be meticulously upheld in rural and regional areas, where, as we all know, access to reliable communications services is critical.

In summary, the coalition amendments would ensure that the normal operation of the Competition and Consumer Act, the key legislation in this country protecting the interests of consumers and promoting competition, applies to the NBN-Telstra deal. In other words, our amendments would ensure that this, the biggest merger in the telecommunications sector in our history—and the establishment of a government monopoly—is not excluded from consideration by the ACCC under its powers under section 51. We would ensure that the parliament is able to disallow ministerial directions to the ACCC regarding the NBN-Telstra deal. We would restore merit reviews to ACCC enforcement of the new access pricing regime. We would restore procedural fairness to the ACCC enforcement of the new access regime. We would remove the ‘gun at the head’ provisions which threaten Telstra with losing access to next-generation 4G wireless spectrum and remove the ‘gun at the head’ provisions of the bill which threaten Telstra with being forced to dispose of its HFC pay television cables and/or 50 per cent interest in Foxtel if it does not structurally separate in a way acceptable to the government. These last two amendments will be moved as a single group of changes.

The support for the coalition’s position in this matter is growing all the time. I have referred to the remarks of the OECD. They are worth dwelling on because the OECD’s report is normally—I think invariably—written with the closest possible collaboration with the Treasury. It is very unusual for an OECD report of this kind to be as critical of a government’s domestic policy as was the report published yesterday. It is quite common for the OECD to issue all sorts of exhortations to greater efforts in terms of economic reform, but to actually challenge a government policy is very rare. What the OECD has challenged most clearly and repeatedly is the way in which a monopoly is being created here. Its concern is considerable—and that, of course, is reflected in the advice the Treasury gave the incoming government in the red book, where it highlighted two major concerns. One was the obvious risk to the public balance sheet of investing $43 billion with no business case, no cost-benefit analysis and no attempt ever to ask, ‘What are we trying to achieve?’ and then, having defined that as universal and affordable broadband, ‘Is there a cheaper, speedier, more cost-effective way of achieving it, one that better promotes competition?’ Those questions have never been asked by the government because they fear that the answer will not be to their liking.

We have seen only today that the Alliance for Affordable Broadband, a group of leading competitive telcos including AAPT, PIPE Networks, Vocus, Ipera Communications and Allegro Networks—all leading players in the competitive telecommunications industry—have written an open letter to the Independent members of the House of Representatives which they have published. This is what they say, and it is a very pithy summary of the concerns that are being more and more shared across the country. The Alliance for Affordable Broadband write:

We recognise that as a nation we already have some catching up to do to bring broadband services to many areas of Australia, particularly regional and remote areas. But, policy of this magnitude which carries with it fundamental changes to the entire fabric of the national telecommunications landscape and re-creates a new government-owned monopoly requires Members of Parliament to ensure such a policy is the best policy for the future development of the country, and in particular the delivery of the most efficient investment by the Australian taxpayer. Past delays cannot justify panic or cut corners now. Mistakes we make in the design and/or policy settings for the proposed NBN, particularly in the areas of structure, affordability and accessibility, will not be easily fixed down the track and could be disastrous for our international competitiveness. You find yourselves in the position of being able to ensure the Government’s policy is sound and that taxpayers’ money is spent well and wisely.

The Productivity Commission is experienced in doing this kind of analysis. It is well respected and credible because it is independent and rigorous and conducts its review transparently. It will approach the question independently and dispassionately, and present the facts. Facts are what is missing from this debate.

This is a vast project that the government is undertaking. We support the objective of universal and affordable broadband, but we must achieve it in a way that protects and enhances competition and in a way that does not impose an utterly unnecessary burden on the Australian taxpayer and ultimately the households that will seek to access the internet through this network.