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Tuesday, 29 May 2012
Page: 6158

Mr TURNBULL (Wentworth) (17:42): One of the largest financial commitments of this government, which is of course not reflected adequately in the budget papers, is the National Broadband Network. We have seen some remarkable advertising campaigns recently on which the NBN is spending $20 million, we understand, to place advertisements such as that in the Home Hill Observer on 4 April which said to readers that the NBN was coming. Of course when they checked they discovered that it was not going to come to them before at least 2015. The advertising spend is quite heroic. There was $3.659 million spent during a four-week period on the three-year rollout announcement. The average revenue per user of the NBN, we are told by Mr Quigley, is just under $30 a month. If there are 3,700 fibre customers of the NBN, that would suggest that in that month it spent 33 times its fibre revenue on advertising, which is really quite an achievement and one which the NBN should not be proud of.

But the thing I want to focus on today in respect of the NBN is a decision of the ACCC only yesterday, a draft determination, a draft decision, to allow the NBN Co. to proceed with its deal with Optus whereby it is paying $800 million to Optus in return for Optus decommissioning its hybrid fibre coax network and migrating its customers to the NBN. This draft determination is a thoroughly unconvincing and contradictory document. Indeed, so unconvincing is the draft determination that one shrewd observer of the NBN saga suggested to me that it was a draft determination designed to be reversed following the period of public consultation. Right now the Optus HFC network, which was built in the 1990s to carry pay TV, passes 2.4 million households in Brisbane, Sydney and Melbourne, of which 1.4 million are capable of being serviced without any additional investment in the network. Optus has 486,000 individual subscribers on its HFC network, of which 429,000 are broadband subscribers. It is the second largest HFC network in Australia after Telstra's. It is not declared by the ACCC, so Optus has no obligation to make it available to other telcos on a wholesale basis.

Just about everywhere else in the world, one of the biggest drivers of investment in very fast broadband, whether it is fibre to the node or fibre to the premises, has been the ability of HFC cable companies to provide broadband and voice services in competition with the traditional copper based telcos. In the United States, for example, it was the competition from cable companies like Comcast and others that caused Verizon to build a fibre-to-the-premises network and AT&T to build a fibre-to-the-node network. While they used different technologies, their competitive objective was exactly the same—to compete with and be on the same technological playing field, at least from the customer experience point of view, as the cable companies.

In every other country of which I am aware, one of the key objectives of telecommunications policy is to promote facilities based competition, which relevantly means encouraging the HFC cable owners to compete with the telcos. It is a matter of great regret—it is a long time ago now, of course—that Telstra was allowed to build an HFC network at all. If Optus had built the sole HFC network, or if a third party had built an HFC network, there would have been facilities based competition along the same lines as in other developed markets to compete with the copper based telco.

But here in the socialist paradise of Julia Gillard's Australia the government is building a massive new fixed line telecommunications monopoly and, just in case there would be any competition with it, the government is paying Telstra and Optus to decommission their HFC networks as well as paying Telstra to decommission its copper network. It is difficult, therefore, to think of anything more anti-competitive than a new government owned Telco, the NBN, paying Optus $800 million to shut down the HFC network, which is currently offering high-speed broadband services comparable to those that will eventually be offered by the NBN itself.

The ACCC in its draft determination has indicated that it plans to improve these arrangements. Yet, bafflingly, in the course of the draft determination it rejects almost all of the arguments put in favour of this conclusion by the NBN Co. and by Optus. For example, it expressly rejects the NBN Co.'s argument that if the HFC deal is blocked by the ACCC then the rollout of the NBN will be slowed down or diminished. It does not accept the argument that the HFC deal with Optus will improve the NBN Co.'s internal rate of return, which was the justification the government gave for the deal, I might add. It also rejects the argument from NBN Co. that the HFC deal is required in order to deliver the reforms to the Australian telecommunications market initiated by the government—structural separation and so forth. It further rejects the argument that the HFC deal will bring forward the claimed benefits of allegedly enhanced competition in the telecoms market.

On the other hand, the ACCC concludes that, if the HFC network does not proceed, 'There is scope for the Optus HFC network to meet consumer demand, predominantly in relation to entry level services.' The ACCC also concludes that the Optus HFC agreement 'has the potential to promote competition and efficiency in fixed line access networks'. It adds about the agreement that 'providing for the decommissioning of an otherwise competing network removes a source of competitive tension, which could deliver improvements in both allocative and dynamic efficiency'. How on earth did the ACCC conclude that the Optus HFC deal should be approved? How could it conclude that an anticompetitive arrangement which has to the best of my knowledge no counterpart anywhere else in the world be acceptable here in Australia? The only substantial benefit from the deal, the ACCC concluded, was that decommissioning the Optus HFC network would 'reduce or avoid inefficient duplication of infrastructure'. This benefit would accrue, of course, only to Optus itself, as it would avoid the cost—so the ACCC concluded—of maintaining and operating its own HFC network. The ACCC writes:

The economic cost saving to society from operating one network instead of two networks is the difference between the resource costs of providing services to these customers using the HFC network and the resource costs of providing the same services to these customers using the NBN.

But is this a public benefit, or is it really is simply a supposed benefit to Optus? Even if you accept the ACCC's proposition, why does it not offset that benefit to Optus against the $800 million cost incurred by the NBN and the unfortunate Australian taxpayers who are ultimately funding that and many other payments to the NBN?

It all seems a very thin argument. It is as though the ACCC has concluded that what is good for Optus is good for the public of Australia. How could this possibly outweigh the obvious diminution in competition? Here the ACCC goes into the realm of heroic assumptions. First it asserts, or assumes, that Optus will not invest in its HFC network to increase its capacity to offer products comparable with the higher speeds available on the NBN—one gigabit per second, for example. Given the rapid pace of disruptive technological change—given the plethora of technological changes which were not only not predicted but also not anticipated—why would anyone assume that this network will not be upgraded in the future? The ability to upgrade copper networks to carry high-speed broadband improves year after year, month after month, as we have seen with the various evolutions of DSL. Why on earth would the ACCC make a heroic assumption like this? Why would it not stick to its charter, preserve competition, let Optus look after its own financial destiny and not constitute itself as a charity for the benefit of Optus, and see what the future brings?

Having assumed that the NBN will overbuild the Optus HFC network, the ACCC goes on to assume that Optus or some future owner of its network will not invest to enable it to compete with the NBN. But why would it not do so, given that its capital cost is so much lower than the NBN's capital cost? Optus would be in a very strong position, as is elsewhere acknowledged in the draft determination, to provide broadband services as it is currently doing in the footprint covered by its network.

The ACCC assumes that, in the future, consumer demand for high-speed access will exceed that possibly available on the HFC. But who knows? Given that the HFC can be upgraded now to well over 100 megabits per second, given the utter absence of any applications which would require that speed now and given the international experience showing that telcos have been unable to achieve any sort of meaningful premium for very high-speed broadband because of lack of applications, the obvious conclusion is that in the here and now—here in Australia just as in every other comparable market—the HFC network is a powerful competitor with the NBN.

If you accept the ACCC's reasoning, then the people running the NBN Co. are commercial morons. If you accept the truth of what the ACCC is saying—that is, if the HFC remains in place, the NBN Co. will overbuild it anyway, Optus will not invest in the NBN to compete with the NBN network and in due course Optus will walk away shedding tears of regret and remorse having lost lots of money in its vain, Don-Quixote-type attempt to compete with the magnificence of the fibre network—why is the NBN Co. giving Optus $800 million? It does not make any sense. This draft determination is so contradictory that the only conclusion you can take from it is that the ACCC believes that the management of the NBN Co. are commercial morons who are recklessly paying $800 million to get something which is going to fall into their lap for nothing anyway.

The truth is that, while I do not see eye to eye with the management of the NBN Co. at all times, I do not think they are morons at all—quite the contrary. They are paying that $800 million because they want to eliminate a viable competitor with their own planned network. That is exactly how the government has justified it. The truth is that everywhere in the world HFC cable networks are providing very high-speed broadband and real, effective, commercial competition with fibre-to-the-premises networks, fibre-to-the-node networks and various variations on those two. We have the potential here at least of the Optus network being available to do that—not over all of Australia but over a large percentage of Australia. For the ACCC, which is supposed to be flying the banner of competition and ensuring that monopolies are kept in check, to say, 'No, this deal can go ahead,' is abandoning its charter. It is a draft determination that should be abandoned as well and replaced with a ruling that would be more consistent with its distinguished track record.

One item I forgot to mention was that the ACCC comforts itself and the readers of its draft determination by saying, 'The NBN Co. will be regulated.' Let us just be quite clear: the NBN Co. is going to be a massively overcapitalised government monopoly in which the government will have a vested interest ensuring that it can recover some value from. It will recover that value by being able to exploit the commercial strength that it has, and that is precisely why this government is eliminating competition. To put one's faith solely in a government regulating a commercial monopoly against its own commercial interests is naive in the extreme. This draft determination should be consigned to the wastepaper bin of competition history and replaced with a ruling that ensures facilities based competition is preserved in Australia.