Some aspects of NBN anti-competitive, says PC

In the kind of decision that will go down in the annals of the astonishingly obvious, Australia’s Productivity Commission has found that some aspects of the National Broadband Network might be considered anti-competitive.

The report, by the PC’s Australian Government Competitive Neutrality Complaints Office, was sparked by complaints from small fibre operators specialising in builds in new housing estate.

The government’s competitive neutrality rules are designed to ensure that where government businesses are competing with the private sector, they do so on a fair and equal basis. For example, Australia Post would not be able to exploit its status of being government-owned to wipe Fedex off the map.

The operators – OPENetworks, Comverge Networks and Service Elements – had complained that rather than acting as a “provider of last resort” in new housing estates, NBN Co was entering the market on a more active basis and undermining their businesses.

They had also alleged unfair pricing, and that its business practices that would prevent it achieving its announced 7 percent rate of return. They also alleged that ministerial determinations regarding technical specifications could also breach competitive neutrality; that its tendering processes allowed it to capture intellectual property from its competitors; that its negotiations with Telstra to transfer copper customers to the fibre network put them at a disadvantage; that its operational standards were being presented as industry standards; and that it should be required to charge the cost of installing fibre in housing estates back to developers.

In its 48-page investigation, the Productivity Commission agreed with two of the providers’ complaints: that the projected rate of return and the timeframe for achieving that rate of return may both represent “a potential ex ante breach of competitive neutrality policy” (the Latin term meaning “before the event”).

The finding rests partly on the government’s contention that the modest 7 percent rate of return mandated for the NBN doesn’t include any quantification of social benefits that would flow from the network rollout, nor of the financial value of the universal service obligations the NBN will assume as it is rolled out.

As the report states: “The Australian Government should arrange for an analysis of the nature and magnitude of the non-commercial benefits required to be delivered by NBN Co. On receipt of the analysis, the Australian Government should put in place accountable and transparent community service obligation funding.

“To comply with competitive neutrality policy, NBN Co would need to adjust its pricing model by taking into account funding by the Australian Government for its community service obligations and would need to demonstrate that the adjusted pricing model is expected to achieve a commercial rate of return that reflects its risk profile.”

The point of this is that if the government wants to argue that a relatively low rate of return is acceptable if the NBN is going to be required to deliver service to households that would be ignored by the private sector, then it needs to quantify the costs and benefits of meeting that obligation.

All of the other complaints were found to either be irrelevant to competitive neutrality, or not in breach of it.

The report immediately sparked a political debate that is so ideological and fact-free that it’s hardly worth reporting. You can find opposition communications spokesperson Malcolm Turnbull’s statement here if you really want it. ®