ACCC: NBN opens Telstra wounds

Australian Consumer Competition Commission (ACCC) believed the National Broadband Network (NBN) project reinforced the need for a review of Telstra's operation.

In a speech to the Australian Telecommunications User Group (ATUG) convention, Graeme Samuel, chairman of the ACCC, said Minister Conroy's commitment to keeping the NBN network separate from retail companies should allow it to deal "head-on" with the difficulties arising from the vertical integration of the current incumbent, Telstra.

"Telstra is vertically and horizontally integrated into telecommunications and the pay TV networks and related content markets," he said.

"The dominance granted to the incumbent by these decisions is clearly apparent. For example, in the fixed line voice sector, Telstra controlled 72 percent of all fixed line retail voice subscriptions in 2007/08, while its nearest rival Optus held an 11 percent share.

"In broadband, Telstra had achieved a 58 percent share in retail subscriptions by 2007/08, up from 47 percent in 2005-06," he said.

Samuel said the NBN project raises the opportunity to undo the mistakes made by previous governments that decided to leave Telstra in control of both the copper network and its retail operations.

"The ACCC considers these decisions to have been fundamental errors that have had very serious implications for the development of competition in the telecommunications industry," he said.

"Telstra has been permitted to compete in the same markets in which it provides access services over its fixed line copper network to other companies - granting it both the incentive and the ability to discriminate against access seekers in an anti-competitive way.

"The vertical integration of Telstra has been one of the most substantial regulatory issues facing the Australian telecommunications industry."

Samuel believed it has "significantly constrained competition", since Telstra's ownership of one of the two largest cable networks in the country and interest in a key pay TV content provider has also blocked the emergence of effective inter-modal competition.

"Taken together, these arrangements make Telstra one of the most vertically and horizontally integrated telecommunications service providers in the world," he said.

"By imposing accounting and operational separation regimes in recent years, the government has attempted to ensure access seekers can purchase essential inputs on equivalent terms and conditions as those enjoyed by Telstra's own retail division.

"However, these measures have been ineffective in constraining Telstra's incentives and ability to discriminate against access seekers."

The government's commitment to ensure the NBN company is structurally separated guarantees a definitive break from an industry structure dominated by the vertical integration of the incumbent.

"Structural separation will mean the NBN operator has a clear incentive to treat access seekers on an equivalent basis," said Samuel.

"Therefore, the government's announcement provides an opportunity to deal head-on with the difficulties arising from the vertical integration of the current incumbent.

"As the government moves to implement its announcement, now is the time to get the ground rules right on structure to support robust competition in the sector in the coming decades."