Australia’s Regulatory History

The following case studies outline the role of regulation in helping to achieve better services and prices for Australian consumers. They address four key segments:

• Broadband
• Wholesale
• CDMA Mobiles
• Customer Transfers to a New Provider

Broadband

Australia is one of the few markets in the world where the incumbent telecommunications provider was permitted to also become the dominant Pay TV provider. As a result Australia was late in its entry into Broadband and we have high cost and poor quality services by international standards.

Australia was one of the last developed countries in the world where ADSL was introduced. This was because Telstra showed no interest in the service until the ACCC made the market available by declaring access to Telstra’s copper loops (the ULL) in 1999. The ACCC also had to force Telstra to allow competitors into the market by issuing a competition notice against it in 1999 to prohibit it launching its own services before competitors had been provided with access to Telstra’s exchanges.¹

• Australia’s broadband costs are high by international standard. See Organisation for Economic Co-operation and Development (OECD) table 1.

• Australia is the sixth most expensive globally after the Czech Republic, Poland, Hungary, Portugal and Turkey.
• Australia’s prices are 30 per cent higher than the US, Canada and Germany and 40 per cent more than Korea.

Table 1: Prices for Residential Bundle: OECD Comparison

• Australia trails other developed nations for broadband penetration. See OECD table 2.
  • Plotting national broadband penetration against Gross Domestic Product per capita shows that Australia is one of the few nations where a higher GDP does not result in a correspondingly high broadband penetration.
  • Ireland is the only other country to have a higher GDP than Australia but lower broadband penetration. In contrast, there are several countries that have lower per capita GDP but higher broadband penetration including France, Japan and Korea.

Table 2: Per Capita GDP and National Broadband Penetration

• Global analysis demonstrates the correlation between increased competition and better broadband.

The European Competitive Telecommunications Association table shows that the greater the incumbent provider’s share of lines in a market, the lower the broadband penetration falls.

Table 3: Competition and Broadband Uptake Relationship: EU. European Competitive Telecommunications Association

• Telstra has repeatedly sought to keep Australia’s broadband prices inflated by stifling competition. For example:
  • Early in 2006 Telstra proposed to charge A$30 for access to the local phone lines (Unbundled Local Loop – ULL) that link Australian households to broadband networks.² OECD analysis (see table 4) shows this rate (which equates to more than 17 Euros), is significantly higher than the next most expensive, Poland, where it costs around 15 Euros.
  • Telstra’s proposed cost was the most expensive worldwide by a significant margin, and was rejected by the Australian Competition and Consumer Commission (ACCC) in 2006.³
  • The ACCC proposed a cost of around A$17.70 (10.3 Euros) which puts Australia around the middle of OECD rankings, but still well above the UK, France and Denmark.⁴
  • Telstra has refused to accept the umpire’s decision and sell ULLS at this price to competitors, forcing them to individually seek protracted and expensive arbitrations by the ACCC.

Wholesale

Telstra has increased its wholesale revenues by 13 per cent and wholesale profits have increased by 18 per cent.⁵
This is despite the fact that technology has cut the cost of delivering these services.

This is not only profitable but gives it unrivalled market power i.e. it is charging competitors more but it is costing it less to deliver access to bottleneck services.

Even rival incumbent telecommunications providers have observed this peculiar trend.

Telecom New Zealand cited in the company’s 2006 annual results announcement a significant increase in Australian wholesale prices from Telstra, despite continued downward pressure on retail prices.⁶

CDMA

Telstra announced its plans to shut down the CDMA mobile network last year and since then has refused to meaningfully discuss moving wholesale access on to equivalent services on the replacement 850 megahertz network. ⁷

Competitors who have paid Telstra to access its CDMA network (subsidised in part) and since built a customer base around that service, are now stranded. ⁸

Customer Transfers to a New Provider

Telstra has a history of delaying the process of transferring a customer to their new chosen supplier (i.e. a competitor) for broadband, mobiles and voice services.

This has been the subject of numerous ACCC investigations on behalf of a range of carriers including Macquarie Telecom, Optus, PowerTel and Primus.

So much so that the ACCC issued Competition Notices to Telstra in 1997.

Faced with regulatory intervention, Telstra implemented more efficient transfer processes.

There are a number of other instances of Telstra using its historical dominance to thwart introduction of customer choice such as Telstra wanting to charge its mobile customers if they tried to change mobile provider.⁹

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