(Image via ‏@NewsinIT)

Paul Budde asks how we can foster competition in the Australian telecoms market if the Turnbull Government revokes the regulatory tool to protect Telstra.

AFTER THE rowdy 1990s and early 2000s, the dust did settle a bit on the competition problems that continued during that period — more than 20 Inquiries, many court cases and ongoing regulatory corrections.

The situation settled down somewhat with the arrival of a new CEO at Telstra, David Thodey, in 2006. Subsequent changes to the telecoms market, along the structural separation of Telstra, also saw a more mature approach towards competition in the telecoms market.

However, it is still essential that we remain vigilant on this issue; while on the surface things have calmed down to a certain extent, there are still ongoing concerns regarding the health of telecoms competition in Australia.

A key element here is the fact that, despite all the positive changes, Telstra remains the dominant player in the market. It received a substantial cash injection, worth more than $11 billion, through the deals with the Government regarding the NBN. This gives the company the financial freedom to basically do anything it wants and it has done so extensively — new IT infrastructure, mobile networks, Wi-Fi. Telstra is one of strongest financial telcos in the world.

But the reality is that the NBN didn’t proceed along the lines that were envisaged after new legislation was put in place in 2009 and 2010. With the Coalition Government coming into power in 2013, most of that was undone and the present government’s version of the NBN relies heavily on the old network. As a result, Telstra, being the company with the insight into and knowledge of that network, became even more powerful.

Furthermore, it remained one of the most vertically-integrated telcos in the world (dominant in the fixed market, the mobile market and pay TV).

While, to its credit, Telstra has certainly become a far more responsible player in the market, offering great products and services, and significantly improved customer services, the reality is that it remains the dominant player in the market. Its overall market shares still hover around the 60% and it is still taking 80%+ of the profits in the telecoms market.

Because of this – and certainly not because of unprofessional behaviour as was the case in the 1990s – we still need a regulatory regime that takes this reality into account.

A key element of that are the so-called “competition notices”. This provides the regulator with a powerful tool to ensure that Telstra stays within the rules and if it doesn’t the regulator can slap a million dollar a day fine on the company for every day it defies an ACCC claim that it is acting anti-competitively. This is big money, even for a powerful company like Telstra and it has helped greatly on the couple of occasions competition notices were issued. Basically, the result was that it brought Telstra to the negotiation table, solutions were found that were acceptable to both parties and Telstra didn’t have to pay the fine.

The Government is now proposing to revoke this regulatory tool, which would be the wrong thing to do in a market where Telstra is still so dominant. This is quite remarkable, since the only company to support this development is Telstra, while the rest of the industry is dead against it.

Why would the Government want to do this? If everybody plays a fair game within the competitive arena, Telstra doesn’t have to fear these notices, as in general it has proved itself to be willing to come to the negotiation table and, if not, its competitors (each of them with much smaller market shares in the Australian market in relation to Telstra) have a powerful tool that allows them to get Telstra to the table if a serious competition issue arises.

It is important to foster competition in the Australian telecoms market and the competition notices have proved to be very effective in achieving this. With a faltering NBN ahead, Telstra will undoubtedly be the major winner in the end game of the NBN, which will only make it more dominant and so it is much better to keep the tools handy that allow the regulator to ensure that viable competition will remain a key feature of the Australian telecoms market.

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Paul Budde is managing director of Paul Budde Communication Pty Limited, trading as BuddeComm (budde.com.au), an independent telecommunications research and consultancy organisation. You can also follow Paul on Twitter @paulbudde.

This article was originally published on BuddeCom and is republished with permission.

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