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Monday, 15 November 2010
Page: 2256


Mr FLETCHER (5:57 PM) —I rise to speak on the Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2010 and I do so with a great deal of interest, having been fortunate to work in the field of communications policy since the mid-nineties, starting with a number of years working for the Howard government’s first communications minister, Senator Richard Alston. I well remember the furious round of work involved in passing the 1997 legislation. The bill that is before the House today seeks to in some ways continue the theme of reform which underpinned the 1997 legislation, but in other ways regrettably very much reverses that direction of reform.

This bill is a mix of good and bad. I want to make three key points in the time that is available to me. The part of this bill that deals with changes to the current arrangements for setting wholesale access prices in the telecommunications sector is, in my view, sensible. The approach that it takes is one that I support and I will talk about that at more length.

The second area of this bill grants in effect a legislative authorisation of the proposed deal between Telstra and NBN Co. The bill includes the powers under which the minister can visit a whole series of undesirable consequences upon Telstra if that deal is not given effect to. I am somewhat curious to wonder why those provisions are actually included when you look at the triumphant press release issued by the minister earlier this year giving the impression that a deal had been done and all was agreed. It does rather raise the question why this set of draconian powers is required. What is particularly troubling is the strong impression which is given that Minister Conroy has an Orwellian belief that competition is so precious that we must destroy it, because that is the clear impression that emerges when you consider what is contemplated.

The third set of comments I wish to make concerns the provisions I have mentioned that give the minister the power to visit some very detrimental consequences upon Telstra if it does not voluntarily put forward a structural separation undertaking. I put to the House that this is a clumsy, thuggish and unnecessary tool to achieve the stated objectives of the Labor government’s telecommunications policy.

I will start with the changes that this bill includes to current price regulation in the telecommunications sector. I bring to my appraisal of these provisions the experience of having spent eight years on the senior leadership team at Optus. Optus is the largest purchaser of services from Telstra, spending over $1 billion a year on such services as PSTN originating and terminating access, mobile terminating access, local carriage service and the unconditioned local loop service. It formed part of my responsibilities at Optus to manage the process by which we sought to negotiate with Telstra and, then, should the negotiations fail, go to the ACCC to seek to have the matter arbitrated. This is what is referred to as the negotiate/arbitrate model. There is a fundamental problem with the negotiate/arbitrate model, which is that Telstra does not like selling these services. The company takes the view, I think correctly, that its market position would be considerably stronger if it were not required to sell these services and it therefore drags its feet at every opportunity.

I would like to share with the House a quote from Dr Phil Burgess, the former American senior regulatory executive, who blazed across the telecommunications night sky like a comet—a comet which fortunately has now blazed all the way back to the United States of America. While he was here throwing out provocative quotations in every direction, he had this to say:

If McDonald’s … has to go to a regulator before it goes into business and declare what it’s going to do on its ovens … and Hungry Jacks comes across the street and says, “I want to buy those fish sandwiches, by the way, at a discounted price, and, by the way, I get the first batch. I’m going to sell a lot of them and if you want more, you’ve got to build another oven. By the way, you build the oven at your own expense. By the way, the cost of the air-conditioning and the gas and the electricity and the lights, those don’t go into the price.”

I have not captured the fierce intensity, the passion, with which Dr Phil Burgess expressed the intense dislike of Telstra for the access provisions. But the fact is the company strongly disliked those provisions and the economic reality is, I believe, that it did so because it considered that those provisions weakened its market power. And of course those provisions were expressly designed to weaken its market power.

I had this to say when I wrote a book about this topic, called Wired Brown Land:

The 1997 laws were fine in theory. Subjecting Telstra to an access regime was a good idea. But in practice there was a very big problem: the laws were simply not tough enough in the way that they dealt with the giant of the sector, Telstra.

The laws established a process for Telstra’s competitors to use Telstra’s network, but the process is fundamentally flawed. It assumes—incorrectly—goodwill and a willingness to negotiate on the part of both parties.

But Telstra has no such willingness. Its interest is best served by charging the highest possible prices for access, by denying access wherever possible and by delaying for as long as possible the agreement of terms on which access will be provided.

That is my considered view, having worked for eight years as the executive at Optus—the largest customer of Telstra—responsible for exercising the rights of that company under the access regime to purchase services from Telstra.

I have mentioned that I was working for the Howard government when those laws were introduced and I simply say that all of us have learnt from experience. The laws were introduced with very good intentions and I certainly believe that the 1997 legislation moved the position forward considerably. But experience showed us that those price-setting provisions in the 1997 legislation were not sufficient. What was in fact required, we learnt over time, was a capacity for the regulator to set prices upfront—what is known in other markets as a reference interconnect offer. I have no hesitation in congratulating the present government on including within this legislation provisions that will now give the regulator that power. I believe they will significantly advance the cause of telecommunications competition.

Turning to the second area that I want to address, unfortunately, what I cannot congratulate this government on is the deeply regrettable parliamentary tactic of linking the provisions about which I have just spoken—the provisions that will modernise and reform the price-setting process—to a set of wholly unrelated provisions. The unrelated provisions are aimed at implementing and legalising Labor’s deeply flawed vision of establishing a new government owned monopoly network, forcing Telstra to exit the field, destroying its existing network and establishing a legally binding contract between Telstra and NBN under which this will happen. That legally binding contract, extraordinarily, would be illegal under the Trade Practices Act were it not for the fact that the government proposes to specifically authorise it under the piece of legislation that is now before this House. For example, section 45 of the Trade Practices Act says:

(2)   A corporation shall not:

(a)   make a contract or arrangement, or arrive at an understanding, if:

…      …           …

(ii)   a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; …

And that is precisely the likely effect of the deal that the Labor Party is proposing in the broadband sphere. It is a deal under which a new entrant into this sector, funded by the government, funded by taxpayers, the National Broadband Network Company, is going to build a new access network and at the same time do a deal with the owner of the existing ubiquitous access network, Telstra, under which Telstra will decommission its existing network—Telstra will trash its existing access network. That existing access network will no longer be available as a vehicle over which competitive services are delivered.

Labor does not want to put this grubby deal to the normal scrutiny which would be required, of having the ACCC consider it and determine whether it is compliant with the Trade Practices Act. Why is that? Because this government knows full well that it would not be compliant. We have the extraordinary scenario in which this government is abandoning the direction of policy of the last two decades in telecommunications, abandoning two decades of commitment to increasing competition and instead is establishing the National Broadband Network Co. as a monopolist and thereby doing fundamental damage to competition, all so it can preserve its stated policy that the National Broadband Network Co. will generate a positive financial return.

The third area of this bill I want to address is the provisions which encourage Telstra to come forward with a structural separation undertaking. These provisions are troubling on many fronts. They are troubling because of the duplicity we have seen from the Minister for Broadband, Communications and the Digital Economy, who in May 2009 said to a Senate estimates committee that he had never advocated the structural separation of Telstra. Senator Conroy said:

I have certainly never advocated structural separation, I do not believe.

Yet suddenly late last year provisions appeared in the legislation which were designed to elicit structural separation. I am on the record as being a supporter of structural separation. The Prime Minister has seen fit to quote extracts from a work I wrote about this very topic. She failed, I might add, to quote later parts of the very same book in which I suggested:

The third option is to stop negotiating and to exercise the government’s legislative powers. Under this option the government would pass legislation to separate Telstra into two companies.

There is no mention of $43 billion, no mention of the grubby deals under which legislation is required to give this new government-owned company a special free pass protecting it from competition. Let me be perfectly clear: I am certainly a supporter of structural separation, but, as Malcolm Turnbull, the member for Wentworth, the shadow minister for communications, has repeatedly made the point, there is no reason to spend $43 billion if your objective is to secure the outcome that you prevent vertical integration by separating Telstra into two entities under different ownership.

What we have here is a set of provisions which are designed in a thuggish way to force Telstra into agreeing to structural separation arrangements and at the same time to pay $11 billion of taxpayers’ money to give Telstra incentive to do that. We have the remarkable spectacle of a minister for broadband and communications rejoicing in the fact that he is going to have a monopoly. In Senate estimates just the other week, what did Senator Conroy say? He said:

We will, as I have said—particularly following the heads of agreement with Telstra—ultimately have the overwhelming majority of if not the monopoly on the supply of the wholesale network within the fibre footprint, unless people decide they do not want a fixed line.

What a tragic outcome for telecommunications competition in Australia this is, that after two decades of bipartisan work towards greater competition in telecommunications, which has delivered manifest benefits in mobile communications, which has delivered significant, albeit lesser, benefits in fixed-line communications, we now have a minister for communications in this country who has reversed that direction and who is positively rejoicing, positively rubbing his hands in glee, at the prospect that he is going to be the controlling shareholder of a monopoly, a company which has, by force of legislative power, the right to exclude any competitor. My prediction is this: based upon all the experience of a wholly owned government monopolist in telecommunications that Australia has had, this flawed scheme will serve Australian consumers very, very badly.

This bill is a mix of the good and the bad. It has provisions which markedly improve the telecommunications wholesale price-setting provisions, and they have my firm support based upon 15 years of experience in this sector. But those are what is required. To combine them with this grubby deal creating a monopoly broadband company and squandering $43 billion of taxpayers’ money is a truly bad mistake. (Time expired)