How much is the NBN going to violate competition laws?

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I say “how much” because it is becoming increasingly likely that our competition laws may well be relaxed on a variety of fronts to help the NBN earn a commercial return. Here are the worrying signs:

  1. Deal with Telstra on copper: the notion that we would decommission a perfectly functioning copper line network that could provide competition for the NBN would, on the face of it, be anti-competitive. To judge whether an agreement that would have Telstra use the NBN for its services and also decommission alternative infrastructure we need to think about what would happen without the agreement. Without the full agreement (access + decommission), Telstra would be forced to compete with the NBN. Australian consumers — across the whole country — would get the benefit of that competition. The same analysis applies to cable. I would really like it if the Government — and for that matter the ACCC — would explain why the analysis isn’t as simple as I just described.
  2. The NBN ‘opt out’ policy: to ensure take-up of the NBN, the NBN will apparently offer the following deal: “hook up now or pay $300 later.” Of course, this threat becomes a virtual compulsion if you want fixed line service in the future as Telstra is pulling out. On one level, this is all just a consequence of (1) above. But let’s suppose a private company offered the same deal. Suppose that the NBN was owned by Telstra and suppose you currently purchase fixed line service from a provider other than Telstra (who currently accesses Telstra’s copper network according to long-established competition rules). Are you telling me the ACCC would allow Telstra to do this?
  3. The NBN ‘national uniform price’ policy: Minister Conroy says the NBN will have a single price across the entire country. We know why that arose — because of the election deal. The weakness of this has been exposed with Brisbane’s plans to roll out its own network. And why shouldn’t it? It can actually do it for less and charge a lower price than the NBN. While that sounds like a good deal for consumers think about what the NBN policy is doing. The NBN will have market power across many markets but perhaps not Brisbane. To ensure that the Brisbane competitor doesn’t get too aggressive the NBN has commitment not to discount price in response to competition in Brisbane. That commitment leads to higher prices in that market. That sounds like taking advantage of market power in other markets to reduce competition in the Brisbane market. Now what is possible is that that commitment leads to competition all over the denser urban areas of Australia. So Conroy’s ‘one price’ policy for the NBN unravels to some extent to become high prices for the bush than what is on offer in the city. The point here is that you cannot claim uniformity or cross-subsidisation as a public benefit to reducing competition as that isn’t really going to occur. Instead, you get duplication without much benefit.

Big questions remain. Will the ACCC actually do its normal approach to all of this and have a public examination of all of these policies and agreements? We should recognise that all of this stuff is political. Conroy wants the NBN to earn a commercial return and could crimp competition to get it. In that case the claim that the NBN is one big monopoly with no social benefits rings true. If the Labor Government were really acting like a Labor Government it would ditch the commercial criteria and focus more on social ones; in the mix, starting to act in the interests of competition and consumers (who also happen to be voters) rather than seemingly against them.

4 Responses to "How much is the NBN going to violate competition laws?"
  1. It makes no sense to leave a copper wire infrastructure in place if we put in a fibre network.  Personally I would mandate that if the NBN (or anyone else) goes into an area with fibre then every house must connect with fibre from the same company.
    Competition can come from allowing different companies to compete for the right to do a particular area.
    We have the criteria that all wholesale prices should be the same across the country and I have no quarrel with that. This can be catered for by selling the right to install and run the network in different areas to different companies.  If the cost is higher in some areas than others then the cost to purchase can be negative for those areas.
    Competition can come in different ways and still be effective. But for infrastructure like wires to houses the biggest cost reduction will come if everyone in an area is physically connected with a common system.

  2. I might make a more general comment based on your blog and nature of this debate more widely. The NBN negates the last 50 years of economics, including but not limited to telecommunications economics. Particularly, things like the empirical evidence showing that those countries that liberalised and privatised their telecommunications markets have seen productivity benefits, economic growth benefits and reductions in price of telecommunications services over those who have not.
    For a layman’s example, see the mobile telecommunications market through the last 20 years. It simply would not have been possible to get where we are if a government owned monopoly have provided mobile telecommunications services. Fact. Economists know this, they also know why mobile was so successful and they know why the NBN proposition violates so many economic principles. Principles that have produced very tangible benefits in telecommunications as of late. In summary, it has taken economists a long time to become economists (usually at least 4 years of study to get an honours degree). Unless people start taking more notice of what they say, as opposed to just disagreeing with them because they don’t like what they say and think they know better, then everyone might want to get ready to see $26-$43 billion get flushed down the toilet. The government does not need to spend this money providing a private good. You can believe economists now, or believe us later. The current situation is frustrating, it is kind of like you going to see your doctor and then arguing with their advice.

  3. (1) Would not the analysis be that of a natural monopoly as a fixed infrastructure utility provider?  Economic theory says that the most efficient outcome is for one provider to exist and to regulate the price (otherwise the monopolist will charge where MR = MC, which is above the point of D/MB = MC).  Therefore, the with/without analysis would conclude that without a deal either: (a) in the long-run one of the network owners would be forced out of the market because they would not be able to recover costs or (b) consumers would pay a higher price to support two networks than one. 

    Have I missed something?  In my opinion, the public interest would be best served by having one national fixed line network owner.  Having two networks has not led to greater competition previously as seen with the HFC roll-out which was really just a massive waste of resources.

    (2)  I think the NBN offer is more along the lines of “(assuming the Telstra deal) if you want a fixed line, you have to get it from us.  When we do our roll-out, we’ll give it to you for free if you let us on your property to install it.  However, if you delay and we have to come back later (which will be less efficient and more costly) we will recover the cost of parts and labour.”  I don’t see that as compulsion, more a commercial reality.  I think the question would be whether *not* charging for the installation is in someway anti-competitive by luring customers off Telstra’s network early.  Imposing what appears to be a cost-reflective charge to connect a service later seems uncontroversial to me.   However, as you say, this is linked to (1) and how you view the offer will depend on your view regarding the Telstra agreement.

    (3) The point of the public benefit of cross-subsidy, I believe, is the network effect and increased incentive for ISPs to provide services in rural areas (which is currently very limited over copper, in part due to de-averaged pricing).   The uniform price attempts to encourage take-up in remote areas by lowering the price by cross-subsidising from the cheaper, higher-density areas.  Of course this raises competition concerns, however, if it is Government policy, then changing the law to take account of it seems a natural consequence.  I think the question should be around whether this is a sound policy and whether the net public benefits outweigh the net social costs.   Assuming the policy maximises public benfit, in order for it to be viable, you need to have one network provider covering the whole country.  Competitor networks undermine this process. 

    I think your focus in relation to point (3) should be to either: (a) explain why a uniform wholesale price is a bad policy or (b) if unifrom pricing is a good policy, explain why the current mechanism for achieving a unifrom wholesale price is inefficient and how it could be improved (if it can). 

    Your point (3) currently loops back to my answer to (1) – utilities are best provided by one supplier, and the cost of maintaining two networks is inefficient.  

  4. I think point 3 shows quite nicely that uniform prices can’t be achieved with cross-subsidies – the market will just route around the problem.  Only direct subsidy will work.

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