The !80 page ACCC draft
Communications Sector Market Study report features the following Key points
- The Australian communications sector has been undergoing a period of significant
change that is affecting how supply chains function and the nature and extent of
competition in retail and wholesale markets. This change includes both structural reform,
as a result of policy initiatives, at the centre of which is the rollout of the NBN, and the
rapid pace of technological advance and product innovation that is occurring globally.
- We consider that the economic regulatory framework
for the
communications
sector
has
proven to be capable of
accommodating major changes to the sector and has
allowed
for
appropriate responses during the transition to the NBN.
We do not find that there is
currently a need for significant changes to this
regulatory regime.
- Notwithstanding
considerable
concentration in both fixed and mobile retail markets there
is evidence of competition between the major service providers of broadband and voice
services. Smaller providers and new entrants have the potential to provide additional
competitive tension by constraining
the larger providers.
- The rollout of the NBN is a major investment in communications infrastructure
and
is
having a significant impact on the Australian communications sector. The changes within
the supply chain and
consequential
impacts on
consumers and retail service providers
have inevitably been a key focus of the market study.
- The NBN rollout is now well advanced with three million premises activated and NBN Co
progressing at a rapid pace to meet a commitment to complete its build by 2020.
- However, a
number of competition and consumer issues related to the NBN transition
have emerged and require immediate measures to resolve
on the part of both retail
service providers and NBN Co, some of which are already underway.
- We are undertaking measures to promote improved consumer and competition outcomes
directed at ensuring availability of reliable and useful information to support consumer
choice. These measures include:
o
broadband
speed claims
guidance for service providers
o
introduction
of
the
broadband
perfo
rmance
monitoring and reporting program
o
enforcement
of the Australian Consumer Law (ACL) to address serious or systemic
failures in advertising
- Other processes
also underway
to identify and address issues arising in the delivery of
services over the NBN i
nclude NBN Co’s consultations with its customers on its pricing
construct and the Australian Communications and Media Authority’s
(ACMA)
review of
consumer experience on the NBN.
- The outcomes of these
various initiatives, and extent to which issues of concern persist,
will
be
an important
factor
in
determining
the need for
further
regulatory responses
in the
short term.
- 5G deployment
could
create significant opportunities for industry and consumers. It has
the potential to
accelerate the extent of fixed
to
mobile and fixed wireless substitution
thereby disrupt
ing
existing business models. The degree of future substitution will in part
depend on the performance of NBN services, both in terms of price and service quality.
- We have not identified any immediate competition concerns in relation to new and
emerging communications services such as over the top content services, cloud services
and the Internet of Things
(IoT). We propose to address any future competition concerns
that may arise in relation to these
services through use of our competition law powers in
the first instance.
- Our assessment makes draft findings on a range of issues, including some of immediate
concern. We have examined the issues of concern in detail to develop our proposed
actions and
recommendations, including the urgency with which they should be
addressed.
The draft report goes on to state -
State of competition in the supply of
voice and broadband
services
Voice and broadband services are the essential communications services on which
individuals and businesses rely. The retail
provision of these
services displays considerable
concentration, with the four largest providers accounting
for 96
per
cent
of services
to
residential premises.
Telstra’s fixed line dominance has not been significantly eroded so far
in the transition to the NBN despite some losses in regional areas where its dominance has
been greatest.
Competition for mobile services is concentrated in the hands of the three
mobile network operators that account for 91
per
cent
of mobile services.
Notwithstanding the
high
level of market concentration there is evidence of competition
between the
vertically integrated
major service providers in the markets for voice and
broadband
services, over both fixed and mobile access technologies. This is particularly
evident
in the
price competition
between suppliers of
both
fixed
and mobile
services.
However,
while
non-price
competition extends across multiple product dimensions for mobile
services
with
significant product differentiation, the same is less true for fixed services. To
date
there is less differentiation in the fixed
services
on offer
and competition
in the fixed
segment of the market
has not
focused on
quality of service dimensions,
such as
broadband
speed.
While there are signs of retail price competition occurring, we have heard from many service
providers, both in submissions to the market study and at the stakeholder forum held in
July
2017, that the NBN wholesale pricing
construct and level is constraining their ability to
provision greater capacity given consumers’ current
willing
ness
to pay. NBN Co has
expressed another view, stating that it has undertaken research that indicates consumers
have a greater willingness to p
ay and that service providers should be doing more to
promote the adoption of higher speed services. These issues may affect efficient use of NBN
infrastructure and NBN Co’s ability to recover its investment costs.
In this regard, we note
that an objective
of
the
policy decision to build the NBN is to support
retail competition.
While we are observing some product differentiation and market
segmentation in the retail plans
currently
in the market,
there is scope for this to further
develop.
We anticipate that competition in the supply of fixed line and mobile
voice and broadband
services will increase following the entry of Vodafone into the provision of fixed line services
and TPG into the provision of
its own mobile network.
This will result in four major
carriers
providing both fixed and mobile services.
Transitioning
consumers
to the NBN
The challenges faced by NBN Co include provision of services over the NBN that meet
consumer
expectations and deliver an efficient use of the infrastructure being
deployed as
well as completion of the build. A significant number of consumers are reporting
unsatisfactory experience with the NBN both during and after migration from the legacy
networks. Two principal concerns arise in this regard.
The first
concern relates to
connection and activation problems at the time of migration and
fault rectification after connection, including
missed
appointments and lack of reliable
information and
unsatisfactory
complaint resolution processes.
The primary concern is that
current NBN service levels do not represent an appropriate
basis to support
a positive end-user experience, and there is insufficient recourse to compensation where service levels are
not met.
Compounding these problems is ineffective communication and coordination in the
supply chain resulting in consumer misunderstanding and confusion.
The second issue is the speed of services supplied over the NBN which
is
not always
meeting consumer expectations. There are a number of aspects to this issue, the most
significant of which are the choice of speed tier made
by
a consumer
when
migrating
to the
NBN and the provisioning of connectivity virtual circuit (CVC) capacity by service providers
to deliver the speed and user experience appropriate to that speed choice dur
ng the busy
hours.
In addition, the capability of the fibre-to-the-node
(FTTN)
technology to deliver
certain
higher speed services
can be
limited.
These migration and experiential issues have gained significant attention, both within the
industry and more broadly in the media, and in our view stem from failures in retail and
wholesale markets that could largely be overcome through
more accurate information,
improved
information flows and better coordination along the supply chain and to
consumers.
In this regard, we consider the issue of consumer dissatisfaction with the speed of their NBN
service can be addressed directly through
the provision of improved
retail plan information
on speeds that supports consumers in making their purchase decisions,
and through
retailers ensuring their retail NBN services
typically
operate in the manner advertised.
We are introducing measures we consider have good prospects of bringing widespread
improvements in the near term, via retailers implementing our 2017 broadband speed
claims
guidance, our introduction of a broadband performance
monitoring and
reporting program,
and enforcement of the ACL to address serious or systemic failures in advertising practices.
We consider that this strategy can bring benefits without the
potential
risks associated with
more intrusive measures, such as mandating minimum standards, which could curtail the
offering of less expensive but slower plans over the NBN even where these plans would be
sufficient to meet the requirements of many
consumers.
The NBN supply chain
We acknowledge that the above measures will not resolve all of the poor outcomes that are
being delivered by retail NBN markets, and also that there are significant concerns
expressed by retailers regarding their upstream
supply arrangements that are potentially
contributing to these outcomes.
A
potentially
significant factor contributing to these outcomes is that
current
average
revenues
per user
for
NBN
services
may
not
be
sufficient to meet NBN Co’s
long term
cost
recovery requirements.
One factor is that we
are not seeing the degree of risk sharing and
alignment of incentives we would expect in a well-functioning wholesale market.
These issues are the subject of processes with the potential to improve outcomes for
consumers. NBN Co is currently consulting with
its customers
on
potential
modifications of
or
alternatives to the current pricing model. In addition, in August 2017 the
Government
convened an industry roundtable to secure joint action to better support co
nsumers during
the NBN migration.
We welcome an industry led approach to improving the NBN experience of consumers
and
an
outcome on NBN pricing
that meets the objectives of NBN Co and service providers. We
consider an industry resolution can be
preferable
to a regulatory outcome
as it is likely to be
more responsive to the immediate concerns of NBN wholesale customers and should be
afforded reasonable time to reach that resolution. Therefore, we are watching developments
and;
if needed,
however,
we will consider exercising our regulatory powers where this would
support these market outcomes being realised sooner. In the meantime, to provide
additional flexibility to the parties in negotiating pricing outcomes,
we have deferred our
decision on the Special Access Undertaking (SAU) variation that NBN Co has submitted.
NBN Co’s proposed
SAU variation incorporates
FTTN, fibre to the
basement
(FTTB)
and
hybrid fibre coaxial
(HFC)
access
technologies into the SAU, to reflect the current NBN
model.
If approved, the
SAU variation
would extend
the current SAU pricing arrangements to
these
access technologies.
Further, the
ACMA
is undertaking inquiries and research to provide a better understanding of
the nature, extent and causes of the concerns regarding consumer experience before,
during and after the migration of consumers to services provided over the NBN.
We propose to examine NBN service standards and their impact on consumer experience.
In particular, we will examine incentives in place along the supply chain and
whether they
are sufficient to support appropriate consumer outcomes.
Key intermediate inputs
Smaller service providers have the potential to add to the competitiveness of
communications markets by constraining the behaviour of the larger providers and
in
creasing competitive tension. However smaller providers frequently rely on wholesale
inputs, either of resale services (as in the case of mobile virtual network operators
(MVNOs)
) or of intermediate inputs such as transmission between NBN points of interco
nnection
(POIs) and their own point of presence
(POP),
as well as internet interconnection services to
reach
the customers and
the content
hosted by
the larger
providers.
In addition, some
smaller service providers do not have the scale to make direct connection to NBN services
at all 121 POIs and rely on wholesale services that aggregate this direct connection with
other wholesale services.
The market study has looked at
whether
these
wholesale markets upstream of retail markets
are operating competitively to supply
key intermediate
inputs that meet the needs of smaller
service providers, including to
build scale. An area where we have identified some concerns
is the NBN
wholesale aggregation market
where potential limitations with the NBN wholesale
aggregation services being supplied
may be impeding the ability of smaller service providers
from entering markets or offering differentiated products over the NBN. We consider
that the
development of this wholesale market to date is not as advanced as might be expected
given that the NBN rollout commenced over five years ago and passed its mid-point earlier
this year. Complexity in retailing on the NBN during the network build
and the effect this has
on the business case for investing in the supply of wholesale aggregation services may be
contributing to the slow development of the wholesale market. The market study has
considered options to promote
the wholesale aggregation
market
while it is still developing.
These options include
potential
action by NBN Co to provide
transitional products or pricing
measures during the rollout period
to
facilitate the entry of smaller or niche service providers.
We have also identified concer
ns in the internet interconnection market where Telstra, Optus
and TPG
appear to
hold
some
market power in relation to access to their networks.
We
intend to
continue to assess
whether access to these
services
is available at prices and
terms that support
competition in the range of downstream markets they support.
Network competition and convergence
The above issues need to be considered in the wider context in which the NBN is being
rolled out. Relevantly, this context encompasses the increasing substitutability between and
convergence in the use of alternative last mile access networks. Substitution of
fixed line
services for
mobile services has been occurring for a number of years and is likely to
continue in response to the recent increase in the data
inclusions offered in mobile network
operators’ plans as the capacity of their networks increases. The substitutability between
mobile
and fixed line has the potential to be boosted when deployment of 5G begins in two
to three years. The extent to which th
is potential is realised will depend on relative costs of
utilising the NBN compared to bypassing the NBN with fixed and mobile wireless
alternatives, which is
significantly
influenced
by NBN Co’s pricing.
The
NBN already faces some competition from non-NBN fixed line networks, particularly in
large occupancy buildings and new estates. These networks are typically in low cost to
supply areas and have consequently affected the NBN financing model which relies on a
cross subsidy from services provided in low
cost areas to meet the costs of providing NBN
services in high cost regional and remote areas of Australia. The
Government is
intending to
impose a charge on these networks under its
Regional Broadband Scheme
(RBS)
to help
fund the NBN’s non-commercial fixed wireless and satellite services.
We
do not
consider this
charge should be extended to other substitute networks in the future; indeed,
we
have a
preference that
all
non-commercial services be funded directly from the budget.
In the
medium
term, given the social objectives it is required to fulfil by supplying services to
uneconomic parts of Australia,
and depending on future developments,
the
Government
could consider whether NBN Co should continue to be obliged to recover its full cost of
investment through
its
prices via options that may provide
it with
greater flexibility regarding
its cost recovery objectives. These could include direct
budget
funding arrangements for
non-commercial services, debt relief measures or an asset
revaluation.
The latter step is
consistent with that usually taken by private sector enterprises if and when business plans
are not met.
Emerging services and issues
Beyond the large number of issues relating to the provision of voice and broadband services,
the market study has considered the growth and development of services delivered over or
using the internet, including IoT, and changes in supply chain structures and related services
such as the use of content delivery networks and data centres. We have also considered the
emergence of cloud based services which are
transforming the way services
traditionally
provided locally to the user
are consumed.
We consider that these markets are highly dynamic and seem to be operating competitively.
These areas are diverse,
subject to rapid innovation and change and,
for the main part,
do
not give rise to immediate concerns regarding the competitive functioning of their associated
markets. However, there are instances where incumbents in the communications sector may
be able
to
exercise market power
or where market power concerns could emerge due to
strong network effects
to the detriment of competition in these markets. Our intention is to
keep abreast of developments in these markets to ensure that rigorous
competition
is
sustained and take appropriate
competition enforcement action if necessary.
Policy implications and priorities
Finally, the draft report sets out our views in relation to policy implications and priorities.
We consider that the
current communications regulatory and competition arrangements
that
we administer
have remained fit for purpose
notwithstanding
the evolution of
the
communications market to date and
appear to be
well suited to deal with the immediate and
longer term issues we have identified in the market study.
The policy priorities largely relate to reviews that are currently being conducted or have
recently been completed. These policy issues have interdependencies with competition in
and the efficient operation of communications markets and include: spectrum management;
data availability and use; the proposed
RBS; and the
Government’s
Mobile
Black
Spots
Program.