Ed Willett, the man in charge of telecommunications company regulation at the Australian Competition and Consumer Commission, at a conference on June 1 said: "Few great things have emerged from monopolies". His basic theme was that Telstra must demonstrate to the ACCC that its $3 billion broadband roll-out promises "better offerings for consumers than the likely alternative".
His statements give insights into the ACCC thinking. They are particularly instructive on the regulator's present refusal to allow Telstra to build a new fibre network and to profit by better meeting consumers' needs.
Monopolies are easily misunderstood. Every company wants to dominate its market and many do so as a result of providing the best value to the consumer.
These monopolies are in marked contrast to those that are the targets of the competition policy reforms of the 1990s. Any monopoly that is supported by government in excluding new providers is detrimental to the consumer and is likely to undermine business efficiency and innovation. The same cannot be said for those monopolies that achieve and retain dominance by simply being efficient: nobody would argue Microsoft has not continued to bring great things to the consumer.
Manufacturers often talk about building "state of the art" plants that they have for their own exclusive use and that, they hope, will confer on them advantages over competitors. Sometimes the builders of such facilities allow competitors to make use of their plant but only if they decide they are being sufficiently recompensed.
Telstra's proposals are like that. The fibre they want to use is not uniquely available to them. They place no condition on installation that they be protected from all other technologies. They simply want to take the business risk that the technology they are considering will offer them great advantages.
In seeking to exploit those advantages they will also be providing considerable benefits to their customers. But the outcome is not assured and, like any other decision taker, they cannot go ahead if the Government forces them to share the upside risk with competitors that share none of the downside risk.
The ACCC recognises that the approach Telstra wants to take is no assured highway to riches. As the ACCC points out, digital subscriber line access multiplexers (DSLAMs) are being added to the local loop. It also points out that alternative technologies such as 3G and wireless might be more suitable for some areas. One consortium has even suggested that wireless would provide superior service for 55 per cent of the population.
On top of all this, Telstra's competitors, led by Optus, are also considering putting in their own fibre-to-the-node network.
These considerations make it unlikely that the ACCC is arguing that it must ensure that Telstra does not, in making its own investment, pre-empt all subsequent ones. This seems doubtful but it may be that, having encouraged Telstra's rivals to invest in DSLAMs, the ACCC is concerned that an alternative approach will reduce the value of such investments.
A more charitable interpretation is that the ACCC is taking it upon itself to decide what is in the interests of consumers and will rule on the proposal accordingly. This constitutes a major extension of its role. It means the ACCC is claiming to be the arbiter of the consumer interest. Regulatory agencies are ill suited to do this and should concentrate on ensuring that market access remains open.
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