Fifield worried domestic roaming would leave taxpayers funding rural coverage

Government asks ACCC to only declare domestic mobile roaming if there is an overwhelming case.

The Australian Minister for Communications Mitch Fifield has called on the Australian Competition and Consumer Commission (ACCC) to only declare domestic mobile roaming if there is an overwhelming case for it, and not simply as a result of a "balance of probabilities".

"I am concerned that there is a real risk that any declaration will lead to an erosion of long-term benefits for all consumers including those that may benefit in the short term from any declaration decision," Fifield said.

"This may also risk increasing consumer expectations that the government will invest to make up for shortfalls in private sector investment where previously these did not occur."

The minister said Australian telcos competing on infrastructure already had a range of regulation to support them such as access to spectrum, sites, towers, land and buildings, and backhaul.

"A decision to declare mobile roaming services could also discourage future private sector investment in network extension and technology upgrades to existing networks," he said.

The ACCC is looking into whether Telstra has a monopoly on the telecommunications market in regional areas, and uses that to charge more for its services where there is no competition.

The commission is examining the impacts a declaration would have on mobile network operators (MNOs), as well as the long-term impacts on investment incentives.

Fifield warned of the thorny issue of pricing, should the ACCC decide to declare domestic roaming and open up telco networks to others.

"How roaming would be priced is a difficult issue, but one that would be key to its effectiveness in improving outcomes for consumers, and maintaining investment incentives for carriers," Fifield said. "In such circumstances, the preference should be to let commercial processes prevail."

In its own submission to the ACCC, Vodafone said Telstra was being "harmful to all Australians, particularly those living in regional Australia".

"In the Australian mobile market, there is a vicious cycle which started with a natural monopoly, has been exacerbated by substantial direct and indirect government subsidies, and exploited by an incumbent which is free-riding on taxpayer investment," Vodafone chief strategy officer Dan Lloyd said in a statement.

"As a result of the natural monopoly, well-intentioned government subsidies aimed at increasing coverage in regional Australia inevitably flow almost exclusively to Telstra. This fuels the vicious cycle, further entrenching Telstra's dominance and allowing it to charge a substantial price premium."

"Unless the ACCC steps in now and declares domestic roaming, customers will continue to lose out to Telstra. Telstra's mobile network is now over 1.4 million square kilometres larger than any other network, and its extreme dominance has gone too far to self-correct."

Vodafone said the economics for it to expand into regional Australia did not add up, would be a waste, and would not be a "prudent" investment.

"Declaration promotes competition by enabling access seekers to grow market share," Vodafone said in its submission. "Sustainable investment will occur by access seekers when they achieve sufficient market share. Such investment will promote long-term facilities-based competition"

Optus hit out at claims that roaming worked, pointing to the performance of Hutchison before it merged with Vodafone, when it had its own 3G network and had an established roaming deal with Telstra.

"Even with an urban-focused network, and pricing that discouraged roaming usage, Hutchison experienced significant increased costs as more customers joined the network and as more customers roamed outside its limited network," Optus said.

"Over two years from 1HFY07 to 1HFY09, Hutchison's direct telecommunication cost increased by 50 percent, which was largely attributed to roaming charges."

The Singtel-owned telco said roaming was likely to lead to higher prices, and static mobile coverage.

"Since network coverage will no longer provide a point of differentiation it will be difficult to justify investments in new coverage in the more remote areas," Optus said.

"Rather than reduce prices it is more likely that regulation will lead to regional based pricing or increased national pricing as MNOs adjust their plans to reflect the costs of a roaming service."

Optus said Vodafone was still living with the consequences of its past network outages, subsequent customer losses, and fumbling its early mover advantage in spectrum.

"The development of market shares since 2010 ... demonstrates that Telstra's current market share is largely reflective of a change in consumer preferences and the perception of Telstra's network performance compared to VHA," it said. "In many respects this shows the market to be working effectively. Telstra has gained market share from customers migrating to it from VHA. This has in turn prompted both VHA and Optus to invest to improve both coverage and the quality of their network.

"Optus submits that VHA's market share differential largely reflects its commercial priorities and reputational damage caused by its 2010 network issues."

For its part, Telstra warned a mobile roaming declaration would lead to carriers abandoning national pricing.

"The roaming charge would need to be seven times the current retail revenue to recover site costs," Telstra said. "Service providers could abandon national pricing to limit the impact of higher prices to only those customers that roamed. Regional and rural customers would pay more for their services than customers in metropolitan areas.

"Roaming would provide a poor end user experience, with call drop-outs, periods where devices cannot be used as they 'ping-pong' between networks, reduced battery life, and risk of network failure."

Even if ACCC only declared roaming over 3G networks, Telstra warned it would end deployment of 4G.

"There is also not a sufficient difference in customer experience and perceptions of 4G vs 3G to support a race for 4G in areas already covered by 3G roaming," Telstra said.

"Declaring 3G-only roaming also would have a chilling effect on investments in 4G and future technologies (5G and beyond) because investors would fear that the regulatory intervention would be repeated once those investments are irreversible."

Telstra also hit out at one of Vodafone's claims to support roaming, that Telstra has used money from government for fixed networks to pay for mobile coverage.

"USO [Universal Service Obligation] funding for the fixed network does not cross subsidise Telstra's mobile network because the government's independent cost study excluded assets to the extent they are used in the mobile network."

Winner of the auction to become Singapore's fourth mobile operator, and the company with similar aspirations in Australia, TPG said mobile roaming would allow a new entrant to quickly build out its network and pick up the customers it would need to make such a service viable.

The telco suggested a tiered roaming structure where costs for roaming in cities was high, roaming in city fringes and large regional towns would attract a "medium" cost, and remote areas would have the lowest roaming cost of all.

As an additional complication, TPG also suggested differentiated roaming prices dependent on the technologies used, but said roaming was not the endgame for a telco.

"TPG believes that being in control of its own network without having to rely on a third-party competitor for services is a strong incentive to build or extend a mobile network."

In its submission, Macquarie Telecom said access regulation was justified because of the behaviour of Telstra.

"As Telstra's market power has increased, so has its conduct exploiting this [coverage] advantage increased to the detriment of competitors in corporate markets," it said.

"It has done this by the condition and constraints it puts on access to its wholesale services, reducing the ability to competitors to take full advantage of their own investments and to enable better performance and coverage for its own retail mobile business."

The Productivity Commission's draft report into telecommunications universal service obligation, released last week, showed that although Vodafone claims to have 96 percent of the Australian population covered by its network, only 7.5 percent of the continent's landmass is covered.

By contrast, Optus claims 98.5 percent population coverage and 15.6 percent of the nation's area covered, while Telstra said it has 99.3 percent of the population and more than 31 percent of the landmass covered by its mobile network.

The ACCC is expected to issue a draft decision early next year, with a final decision due prior to July 2017.