Australian Communications Regulation

Michael CosgraveGroup General ManagerCommunications Group

Australian Communications Landscape 1

• Australian demography – need to provide services to a population congregated in cities separated by long distances, while also reaching remote areas

• Network characterised by customer access network comprising long loop lengths in rural areas – service equity issues between metropolitan and non-metropolitan areas more acute as a result

• Access networks also include cable, satellite and wireless, but weak inter-modal competition

• Market structure issues similar to those in some European jurisdictions

Australian Communications Landscape 2

Telstra Corporation: vertically integrated single incumbent

• Leading market share in fixed line, mobile, cable and xDSL

• Has continued degree of market power across most telecommunications markets

• Ability to leverage market power into new markets

• Increasingly aggressive US management team since mid 2005, lobbying government against regulation

Australian Communications Landscape 3

• Most competitors dependent on access to Telstra infrastructure to participate in fixed-line retail markets, while at the same time competing against Telstra’s vertically integrated retail business

• Quasi-infrastructure competition developing through access to Telstra’s network, eg: Unbundled Local Loop Service (ULLS)

• ULL is enabling competitors to mitigate reliance on Telstra through investment in DSLAMs which provide broadband and voice through the ULLS

Australian Communications Landscape 4

• Incumbent remained majority Government owned until late last year

• In mid 2006, Federal Government implemented a form of operational separation of Telstra but this is subject to government rather than regulatory oversight

• Broadband: a “second order” election issue in 2007

Regulatory Regime 1

• ACCC: Independent statutory authority, formed in 1995, administers the Trade Practices Act 1974 (TPA) and other acts

• Regulates national infrastructure services, including communications, and also energy, rail, airports and water

• Regulation required to strike a balance between ensuring that investors are not discouraged from undertaking new investment, while at the same time ensuring that consumers obtain the benefit of competition

Regulatory Regime 2

• ACCC is both a Competition Authority and Regulator

• TPA contains telecommunications specific provisions to address anti-competitive conduct and facilitate access regime

• Provisions supplement general anti-competitive conduct and access provisions in TPA to facilitate speedier response to issues of concern in fast moving communications markets

Regulatory Regime 3

• Under this regime, ACCC has both ex post investigative powers and ex ante competition/access price regulatory powers

• Access regulation is based on the negotiate/arbitrate model and price signalling rather than price setting for input services

• Abuse of market power investigations in this sector tend to focus on price squeezes - typically difficult to prove in court (cf. French decision)

Current issues 1

• Next Generation Networks and Broadband service development are big issues in Australia – fibre

• Development of NGN raise issues relating to the timing of deployment and the regulatory arrangements that will apply to the network

• FTTN proposals have been put forward by Telstra and G9. consortium of telecommunications companies

• G9 involves a consortium rolling out fibre to the node using the incumbent’s copper – unique proposal

Current issues 2

• Telstra withdrew its proposal in August 2006 over disagreements about pricing of the legacy network

• G9 has submitted a Special Access Undertaking in relation to prices for wholesale access– released for public debate

• Incumbent’s FTTN proposal emerging as a result of ULL competition rather than intermodal competition

Current issues 3

• Government response – moving towards a competitive tender environment

• in urban areas, high-speed fibre broadband network infrastructure will be rolled out following a competitive bids process

• In rural areas, Government awarded $958 million to joint venture for building 12mbps wholesale broadband network

• Process will be assisted by an Expert Taskforce, comprising government and business representatives, including the ACCC

Current issues 4

• Different regulatory implications depending on who wins the tender – not necessarily a beauty contest between two existing FTTN proposals

– If incumbent is selected: • Access arrangements, particularly pricing• overall regulatory regime• Functional (operational) separation review

– If G9 consortium model:• Cutover• Protection from overbuild

– Other potential tenderers: ???

michael.cosgrave@accc.gov.au