Communications Minister Paul Fletcher has issued a Statement of Expectation to the ACCC over their position on NBN pricing, writes Paul Budde.
IT CAME AS A SURPRISE to many in the telecoms industry as well as in the legal profession that the Government issued a Statement of Expectation (SoE) to the Australian Competition and Consumer Commission (ACCC).
In my opinion, what this means is that the Government would like the ACCC to facilitate NBN Co to increase their prices. I will come back to this in a bit more detail. But in essence, the Government would like to create a better financial position for the NBN to put it up for sale. The alternative I have advocated now for many years is to write down some of the NBN costs.
Perhaps the SoE is not directly a declaration of war, but most certainly a clear indication that the Government is not happy with the ACCC.
My interpretation here is that the NBN is costing far more than the Government had anticipated. Remember that Malcolm Turnbull talked about costs of $25 billion and the NBN to be finished by 2016 under the Multi Technology Mix (MTM) plan that he had designed after the Coalition Government abandoned the previous fibre to the home (FttH) plan. This was a political construct, not one designed by independent market or industry experts. The Government should bear the costs of any mistakes made in developing this plan.
However, the SoE is basically asking the ACCC to change direction in order to assist the Government in recouping its money. This is most certainly not in the interest of the consumers and the competition, and the ACCC (the Australian Consumer and Competition Commission) is established to look after them, not after the political interest of the Government.
With the cost of the NBN now being more than double the Government initial estimate, NBN Co very understandably does have a financial problem. Recently, the Government looked at yet another estimate of the value of the NBN. We do not know what the outcome of that is, however, it's interesting that Minister for Communications Paul Fletcher soon after comes out with this unprecedented request to the ACCC. A key element of it is the request to review the constructions of how the costs of the NBN are treated in the price setting. My interpretation here is that the suggestions made by the Government would eventually result in higher wholesale prices and that, of course, will filter through to higher retail prices.
Already for several years, many experts have indicated that the high NBN costs in relation to what it provides (a second-rate rather than a top-notch infrastructure) are making it increasingly more problematic if not outright impossible to recoup that investment, for example, by getting a premium sale price for the NBN.
However, increasing the retail price is not a viable solution. Around the world, we can clearly see that there is very little price elasticity in telecoms pricing. If the subscription costs are getting too high, people will simply not buy it. So bearing in mind that NBN is a monopoly, the ACCC is correct to look at consumer affordability rather than at the what the costs are for the Government.
It is amazing that the Government, it seems, still does not value the importance of the NBN to our nation. The social and economic benefits far outweigh any financial return on the investment. We only need to look at the impacts of COVID-19 on our society and our economy to understand the immense value of the NBN as national infrastructure. Rather than making access more expensive because the NBN has cost too much, the Government should look at lowering the access costs, especially to those people in society that are hardest hit.
One of the most contentious issues is NBN Co’s consideration to eliminate the lowest cost tier of the NBN (12/1Mb/s), forcing these people to the higher cost packages. So far, this has not happened, but we need to be vigilant as that issue is still on the agenda. The ACCC wants to keep the entry-level to the NBN at a price not higher than $35.
I would argue that everybody should be able to get access to the higher speed package (25Mb/s) for that same price, simply as a national interest issue to provide better quality broadband to those who most need it.
Having explained what the intention of the Government seems to be, it was very heartening to see the ACCC coming out swinging. First, it is important to mention that they are an independent agency and the Government can not directly intervene — it can change the laws, but as they stand, they cannot interfere with them.
In this respect, it is also worrying that in the Statement, the Government asks the ACCC to brief the Government well before the issue their announcements. I can see that the Government wants this, but I also fear that this could result in it trying to intervene with these announcements. This is in line with a general power grab from politicians taking it away from the bureaucracy — this undermines our democracy.
The ACCC responded immediately without directly referring to the Statement. They have clearly indicated that their role is to ensure the best outcomes for consumers and for competition.
There have been ongoing concerns that the current wholesale prices are already too high; the SoE could see these prices rise even further rather than fall. The pressure put on these prices by NBN Co either reduces the viability of retail competition or they result in higher retail prices. The NBN is a monopoly and is therefore in a very strong position to misuse their market powers in a way that results in outcomes worse for customers and the competition.
We absolutely need a strong and independent ACCC to safeguard the telecoms market. The reaction from the industry has been lacklustre, but they better stand up as it will make their already bad position even worse.
It is obvious that the Government is putting pressure on NBN Co to create a better financial outcome. However, it would be unfair that the financial miscalculation of the costs of the NBN as mentioned above should be worn by the users. Sooner or later, the Government will have to face that issue, bite the bullet and write off, let us say, 50 per cent of the costs in the name of national interest. It is not that difficult to create an acceptable political message around such a decision.
In the meantime, the ACCC needs all our support to ensure that they can remain independent and that they will be able to continue to act in the best interest of the customers and of the competition and not in the (political) interest of the Government.
The initial signs coming out of the ACCC are encouraging; they are defiant. Let us see how they go and/or how much pressure the Government is going to use to recoup as much of its costly investments in the NBN as possible.
The sad thing is that rather than ensuring that all Australians will receive the best quality broadband at an affordable price, the political battle that continues to fester keeps hampering such an outcome.
Linked to that, you might recall that I and others asked the Minister to issue an SoE for the NBN. We are still interested to hear what the Government thinks the NBN is all about. Is it indeed a national infrastructure project for the social and economic benefit of Australia, or is it just a commercial investment with the aim to maximise its value. Obviously, the Minister shied away from providing his expression on the NBN and did not issue such an SoE. So we still don’t know what the Government’s expectations are of its national NBN investment.
We saw a similar level of government action or inaction before it privatised Telstra and aimed to maximise its sales price. I see this SoE as a similar attempt to up the sales price for the NBN. Interestingly, when the Telstra sale occurred, Paul Fletcher, then at Optus, was a fierce opponent of the Government’s protection of the Telstra monopoly.
Paul Budde is an Independent Australia columnist and managing director of Paul Budde Consulting, an independent telecommunications research and consultancy organisation. You can follow Paul on Twitter @PaulBudde.
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