History Shows Competition Fosters Innovation and Better Prices
Competitive markets, when supported by good policy, generate great consumer outcomes. But where a market is already distorted it is essential that regulatory settings are established to change the industry structure over time.
Many innovations in the Australian telecommunications sector in recent years were sparked by competitors including:
- 3G mobile services - launched by Hutchison Telecom in 2003 under the brand 3. Telstra and other providers followed in 2006.
- VoIP (Voice over Internet Protocol) – iiNet has been selling domestic VoIP services since 2005.
- High-speed ADSL2+ broadband – pioneered by competitors such as Internode and iiNet from 2004.
Telstra didn’t offer similar services until 2006, and states it will only do so to meet competition.
- Capped mobile price plans - pioneered by Hutchison Telecom in 2003.
The ACCC subsequently noted that “The fall in mobile prices [2004-2005] was mainly due to the introduction of so called ‘capped’ or ‘bucket’ plans by carriers which resulted in large falls in prices paid by consumers …” 1
- Flat rate internet access – pioneered by iinet in 2002. Telstra followed much later.
- Consumer internet access – pioneered by OzEmail in 1993. Telstra didn’t have an internet offering and only entered the market in 1996.
- Rural voice services at metropolitan prices. Launched by Internode/Agile Communications in 2001 on its Coorong regional network. Telstra lowered retail prices for people in the service area -- and only in the service area -- the following day.
Telstra’s history of following competitors with new service offerings and better pricing is consistent with basic economics and historic experience, both in Australia and overseas.
Without competitive pressure, there is no incentive for an incumbent supplier to upgrade or innovate.
Footnote
[1]Graeme Samuel, Chairman ACCC, covering letter to the Minister for CITA, 27 April 2006 accompanying the ACCC report on “Changes in prices paid for telecommunications services in Australia”.
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