Investors attack ACCC over NBN advice

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Investors attack ACCC over NBN advice

Regulator hits back at NBN policy audit.

Australia’s competition watchdog has come under fire from telecommunications investors concerned about the role it played in the conception of the Labor Party’s national broadband network.

The Coalition Government earlier this year tasked former Telstra executive and current Swinburne University Chancellor Bill Scales with auditing the process by which the former ALP Government conceived of the NBN.

The Scales audit found the policy formation had been “rushed, chaotic and inadequate”, and said the Australian Competition and Consumer Commission had overstepped its authority by advising the ALP’s panel of experts that fibre-to-the-node was not a stepping stone to fibre-to-the-premise.

In a letter [pdf] penned to the ACCC on behalf of unnamed “long-term value investors”, published today, CIMB Securities telecommunications analyst Ian Martin said several of the report’s findings - including that the ACCC’s advice was inappropriate, unsolicited and not borne out by international literature - were of significant concern.

“The implication of the audit findings ... is that the ACCC knew, or should have known, that its advice in favour of FTTP was both wrong and inappropriate but it gave it anyway in order to help bring about a preferred structural outcome for better or worse,” Martin wrote.

“This is a view widely held among those long term value investors with a good knowledge of the sector.”

Martin said the ACCC had not responded to the audit report in the eight weeks since it was tabled, despite the “serious concerns raised about its role”, and had additionally allowed the perception that it endorsed the use of FTTP to remain for four years before refuting it in the Scales audit.

He said the audit's findings raised “significant implications for the ACCC’s independence in its subsequent role in these telecommunications regulations”, given what he called the ACCC’s “erroneous views” on the ongoing role and value of copper in relation to the NBN.

Specifically, he questioned the regulator’s

  • adjustments of the copper access pricing model
  • its “arbitrary revaluation of the copper given its views on FTTN and FTTP”
  • its recommendation to limit NBN PoIs and so limit backhaul competition
  • its acceptance of the Telstra-NBN agreement and Optus-NBN agreements
  • its review and authorisation of the NBN SAU

"We think the ACCC’s approach to these regulations in the NBN implementation period has significantly distorted industry outcomes as well as returns and investment performance in the telecommunications sector,” Martin wrote.

“This has created disincentives to invest in certain telecommunications infrastructure and over-stimulated the behaviour of access entrepreneurs.”

He urged the regulator to comment on the audit’s findings and how it intended to address them in order to allow investors to “rely on the ACCC as an independent regulator in this sector”.

Martin also asked the ACCC to be “fully transparent” about its role in the events referred to by the Scales audit by publishing minutes of relevant meetings, all the advice it provided to the Government on the NBN, and material on how the NBN was considered in subsequent regulatory decisions.

In response [pdf] to Martin’s letter, ACCC executive general manager of the infrastructure regulation division Michael Cosgrave said the agency categorically rejected his assertions.

Cosgrave said the ACCC did not agree that it overstepped its authority in its advice related to FTTN and FTTP, and did not accept the characterisation that such advice was technical or unsolicited.

“On the contrary, the ACCC was acting entirely consistently with both the Australian Government’s RFP objectives and the ACCC’s remit as an advisor to the government as part of that process,” Cosgrave responded.

He said the request for proposal documents for the initial NBN required the ACCC to, among other things, provide ongoing advice on proposals including issues such as wholesale access services and prices, as well as the potential impact of proposals on pricing, competition and end users in the telecommunications sector.

He also noted that the RFP documents specified that the proposals provide for sufficient network capacity and future upgrade paths.

“The ACCC considers the RFP contemplated the ACCC’s role as encompassing the provision of economic advice on the efficient use of and investment in infrastructure, including the efficient investment and upgrading of the different network technologies that were being envisaged by the RFP,” Cosgrave said.

He argued that the ACCC’s advice on FTTN versus FTTP identified competition issues and was not based on technology preference.

“The ACCC did not provide ‘technical’ advice. Advising on the efficiency of different options for investment requires a degree of understanding of technology and cost issues,” Cosgrave said.

“In formulating its advice, the ACCC necessarily relied on technology and cost information provided in proposals it had before it from firms operating in the industry that had the necessary technological expertise and insight into cost structures.

“That advice identified a potential economic and competition issue regarding the efficiency of future network investments and upgrades, as influenced by the market and regulatory structures for the NBN.”

Cosgrave refused to publish all the advice provided by the ACCC to the Labor government on the matter, “consistent with long established practice [that the] release of confidential advice is a matter for government”, but said he would publish Martin’s letter and his response on the ACCC website.

Former ACCC chairman Graeme Samuel has expressed a similar distaste for the Scales audit, calling it “fundamentally flawed in its evidence base” and “factually wrong” about the role of the ACCC.

“[Scales] has been insulting and offensive to the remarkable intellect that constituted the expert advisors engaged by the previous government to advise it on all aspects of the NBN – a group that included Commonwealth Departments of Treasury, Broadband, Communications and Information Technology and Attorney General,” Samuel told delegates at the Charles Todd Oration lunch last week. 

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