Professors slam Oz HFC wholesale shutdown

Two regular contributors to Australia’s industry regulation debates have penned a paper slamming the proposed “Telstra-NBN” deal.

Under the deal, which is under consideration by the ACCC, Telstra is to withdraw from fixed line services as the National Broadband Network fibre is rolled out. In addition, both Telstra and Optus have agreed to withdraw from the cable broadband market, and neither will promote their mobile broadband networks as a substitute for fixed fibre services.

Toronto University’s Professor Joshua Gans (founder of economic consultancy Core Research) and MIT Professor Jerry Hausman have criticized the deal on the basis that it’s “massively” anti-competitive.

Instead of ending services on the HFC network, they propose that Telstra sell the network (suggesting Foxtel as a possible buyer) and permitting HFC-based broadband to continue. They also believe Telstra should be permitted to offer wireless services explicitly in competition to the NBN.

The pair also criticizes the government’s desire for the NBN to have uniform pricing covering both urban and regional areas, saying that it is “not the role of competition policy to facilitate cross subsidies” and asserting that cross subsidies are “inefficient” (The Register presumes that these comments are restricted to government-mandated cross subsidies, since businesses routinely apply internal cross subsidies).

Gans and Hausman, while not household names, have a long history of involvement in regulatory arguments in Australia – on occasion, such as in debates about mobile termination regulation, they have argued on opposite sides of a proposal. Their inputs have covered not only the telecommunications industry, but the airline sector, petrol pricing, and retail energy deregulation.

Criticizing the competition impacts of the shut-down, the two gentlemen write: “Two potential competitors in broadband services are agreeing for one of them to exit the wholesale broadband market … experience elsewhere demonstrates that cable providers are significant competitors against fibre providers of broadband.”

Comment: Whether the loss of the HFC cable network is likely to have any impact on wholesale competition is less clear, however, since those networks aren’t offered on a wholesale basis. At the end of August, Internode founder Simon Hackett went public with his complaint that he had repeatedly requested access to Telstra’s HFC network but that this has always been refused.

The only way that the HFC networks could facilitate retail competition is if access to those networks were mandated by the ACCC. Interestingly, Hausman is on the record as arguing against open access regulation, saying that it gives potential competitors a “free ride” on infrastructure owners’ networks, and in this 2006 presentation, he argued for the “end of regulation”.

At the same 2006 conference (and in the same presentation pack), he argued that the cable network should be separated from Telstra. ®