ACCC says no to domestic mobile roaming

The draft decision by the Australian Competition and Consumer Commission (ACCC) to not declare a wholesale domestic mobile roaming service is a missed opportunity.

There should be no doubt that the ACCC would have been under significant pressure to maintain the status quo at a time when it might be seen to be political dynamite to make a decision that could lead to Telstra acting on its threat to reduce mobile infrastructure investment in regional and remote areas.

The Minister for Communications and the Arts Mitch Fifield is certain to have had difficult discussions with the ACCC, pointing out that Telstra’s army of 1.35 million retail shareholders would be looking to take their anger out on the Government if a decision to declare a domestic mobile roaming service led to a drop in the Telstra share price and earnings.

The fact that Telstra has received billions of dollars in funding from Federal, State and Local Governments over the past couple of decades for mobile infrastructure deployments has not been adequately considered by the ACCC.

Telstra remained steadfast in its refusal to share publicly funded mobile network infrastructure for many years and it was only with an earlier decision by the ACCC that a code of access to telecommunication transmission towers was implemented.

Unfortunately, the ACCC’s draft decision means that mobile network operators have two choices moving forward and both options are daunting.

The first option is to continue to build infrastructure with the goal of expanding national network coverage.

The potential for a farcical outcome with this option is very real. Telstra has long marketed its mobile network as having the largest national coverage and to compete with this claim the other mobile network operators could be forced to build infrastructure in regions where the customer numbers do not justify more than one mobile network base station.

The second option, for those mobile network operators seeking to expand their network into regions already covered by another mobile network operator, is to pay for access to existing infrastructure.

The argument put to the ACCC by Vodafone was straightforward. The cost of access to existing infrastructure, particularly infrastructure owned by Telstra, is too high thereby negating the second option as a value proposition.

The ACCC is wrong to not declare a domestic mobile roaming service for two reasons.

The cost of telecommunications in Australia is unjustifiably high by international standards and there is an arguable need for consumers to gain relief from price gouging. The ACCC has been slow to bring down transit, backhaul, infrastructure and other regulated charges thereby failing to act in a timely manner to bring the Australian telecommunications market more into line with international experience.

The second reason is the need for the vast number of Australians living, working or transiting through regional and remote areas to gain relief from the lack of effective competition. Telecommunications is more than the provision of telephony today, and consumers should be provided with access to competitive retail offerings irrespective of location.

It is time for the ACCC to carry out a full audit of mobile network infrastructure that has been fully or partially funded by the Federal, State or Local Governments. Various claims made by Telstra need to be verified by the ACCC and this does not appear to have occurred. The Australian tax payer has reason to ask why a privately held company should be the sole beneficiary of public funding for an essential service.

The ACCC Chairman Rod Sims stated that “the ACCC has insufficient evidence that declaration will improve the current state of competition overall.”

“We are extremely conscious of the fact that in regional, rural and remote areas, mobile coverage and choice of service provider are vital issues. However, the effect declaration would have on competition in regional, rural and remote areas is uncertain. While declaration may deliver choice for more consumers, declaration has the potential to make some consumers worse off.”

“Currently, regional consumers benefit to some extent from price competition in metropolitan areas because operators price their services consistently across Australia, despite the higher costs in servicing regional areas. They also benefit from competition between operators on network investment.”

“There is insufficient evidence to suggest that declaration of a mobile roaming service in regional and rural areas would further lower prices or improve services, given the higher costs in servicing these areas,” Mr Sims said.

There will be quite a bit of head scratching going on today as people try to get their heads around Mr Sims statements.

Mr Sims statement that a “declaration has the potential to make some consumers worse off” is remarkable. The draft decision report would hopefully clearly identify which consumers would be worse off and why, yet there is only the vague hypothesis that Optus and Vodafone Hutchison Australia (VHA) might increase “retail prices as they would be able to offer a higher quality product.”

Section 6.2.1 of the draft decision report is summarized with the statement that “the available evidence suggests that any pro-competitive effects are likely to be modest, and there are risks that declaration will lead to less competition and worse outcomes for some consumers in the national market for mobile services.”

This hypothetical outcome is nonsense and toes the Telstra and Optus line.

In Section 6.2.3 the ACCC states that “overall, the ACCC considers that it is difficult to compare the mobile services markets of other countries with the Australian market. Each market has their own distinctive structure and competition issues, and the reasons for a regulator choosing to mandate, or not mandate, roaming are based on the features of those markets at the time of consideration.”

The fact that many other countries have used domestic mobile roaming service declarations to improve competition appears to have been ignored. Perhaps, the ACCC will provide a reasonable rationale as to why Australia is different?

The reality is that the mobile network market in Australia is not unique and there is nothing internationally distinguishable about the market today.

There is a common theme in the ACCC’s draft decision report and that appears to be the use of obfuscation and vague comments to prevent reasonable analysis of the ACCC’s decision.

Whilst TPG’s announcement that it is entering the market as a mobile network operator occurred rather recently, the ACCC has blithely ignored the need to consider what the declaration of a domestic mobile service might mean for this new entrant into the market.

To highlight the ACCC’s decision to waffle and obfuscate consider the statement in Section 6.2.3 where it argues that the “ACCC considers that such a roaming service is likely to be of limited utility to a new entrant such as TPG, as it will most likely wish to acquire a roaming service in the more densely populated parts of Australia where potential revenues are higher. The ACCC’s preliminary view is that declaration of a roaming service in areas with no, or limited infrastructure based competition is unlikely to promote competition by reducing barriers to entry for a fourth MNO.”

Before you rush to criticize the ACCC for making yet another unjustifiable assumption about what mobile network operators might or might not do, the ACCC follow up with “however, it would be interested in stakeholder views on this point.”

If you were TPG, any opportunity to grow market share as quickly as possible is going to be considered a plus. How can the ACCC make the rash observation that TPG would not be interested in a regulated wholesale domestic roaming service in regional and remote areas?

The ACCC’s draft decision report fails to consider the effects of a wholesale mobile network market on mobile virtual network operators. In another stunning omission and decision to sit on the fence the ACCC states that “the ACCC has not formed a view on whether the effect of declaration on these markets should be considered separately. It is therefore seeking additional views from interested parties on whether these markets should be considered separately or whether they form part of the national retail services market and, if so, how declaration would affect those markets.”

So, after six months of investigation, the ACCC has found that there is a need for more research in key aspects of the mobile network market, yet it is confident in its decision to not declare a domestic mobile roaming service. What a copout!

It is reasonable to criticize the ACCC, not for the declaration decision but for the blatantly obvious decision to not make a decision that might alter the status quo and for failing to adequately research the key factors that should be taken into account when the decision is made. In other words, the ACCC is saying to the four mobile network operators that they need to find a way forward without regulatory intervention.

Proponents for a domestic mobile roaming service have argued that a declaration lasting five years would be beneficial to the overall market. This is a reasonable proposition that would permit TPG and to some extent VHA to become competitive and for this national competition to drive down mobile prices.

The opportunity now exists for NBN Co to move forward quickly with a wholesale product that facilitates mobile networks around the nation. As a wholesale telecommunications infrastructure and service product provider, NBN Co should take immediate action to facilitate growth in the VHA and TPG mobile networks into regional and remote areas.

With this draft decision, the ACCC has demonstrated why Australia continues to struggle to gain access to improved national telecommunications services at reasonable cost.

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