Optus accuses telco regulation of failing to keep pace with technology

The Australian Competition and Consumer Commission (ACCC), the Australian Communications and Media Authority (ACMA), and the federal government are at odds with each other in regulating the telecommunications sector, which is having the effect of inflexible, contradictory policy being developed that stymies innovation, according to David Epstein, vice president of Corporate and Regulatory Affairs at Optus.

Epstein, speaking at the CommsDay Summit in Melbourne on Tuesday, pointed towards the current regulatory structure, which splits the task between the Department of Communications, the minister responsible for that portfolio, the Attorney-General's Department, the ACCC, and the ACMA. He also said the industry self-regulates through the Communications Alliance.

Epstein argued the need for a modernised single, unified industry-specific regulator, saying that preventing over-regulation and promoting innovation by staying abreast of technological advancements is crucial to competing within the global digital economy.

"Effective competition policy is critical to the future economic wellbeing of the nation, and yet the existing institutional structures put in place over two decades ago are failing to keep pace with the complexities and change in technologies that embody the modern digital age," he said.

Simon Muys, a partner in law firm Gilbert and Tobin's Competition and Regulation group, agreed, saying that the only way forward is to revamp the antiquated ACCC.

"I do worry that we need to disrupt our own regulatory mindset if we're actually going to set ourselves up for the kind of growth and investment that we're talking about." Muys said.

"I'm all too familiar with the sort of approach the ACCC tends to bring to market issues. And they are quite rigid. They are quite structured. They think in a very static way."

Having both a telco-specific regulator in the ACMA as well as a wider economic competition regulator in the ACCC has led to inconsistent and contradictory policy outcomes; duplication of activities; and a lack of agility and flexibility to respond to technological changes, according to Epstein.

"The present structure does not promote regulatory consistency," Epstein said.

"Each agency will set its own priorities and interpretations. The priorities of one agency may not align with those of another; indeed, on occasion the priorities have seemed to come into conflict."

He pointed towards spectrum allocation as an example: With the ACMA setting out to ensure efficient allocation, the ACCC wanting to increase competition, and the government wishing to maximise auction revenue, their policies were at odds when developing rules.

"This conflict was evident in the digital dividend auction of 700Mhz and 2.5Ghz spectrum," Epstein said.

"A complex auction process designed to illicit true market value for the spectrum was undermined by a parallel decision to set high reserve prices."

In May 2013, the government had auctioned off spectrum in the 700MHz and 2.5GHz spectrum bands to Telstra, Optus, and TPG for a total of AU$1.96 billion.

Telstra picked up the majority of the spectrum, purchasing 2x 20MHz of the 700MHz spectrum band across Australia, as well as 2x 40MHz pairs of spectrum in the 2.5GHz spectrum band for AU$1.3 billion; Optus came in second, acquiring 2x 10MHz of spectrum in the 700MHz band and 2x 20MHz pairs of spectrum in the 2.5GHz band for AU$649 million; and TPG bought up 2x 10MHz of spectrum in the 2.5GHz band for AU$13.5 million, while Vodafone did not pick up any spectrum.

In September, the ACMA announced that it is accepting applications from telcos that wish to take part in the 1800MHz spectrum auction in November.

Diversity of ownership and therefore competition is being promoted, with no party permitted to acquire more than 2x 25MHz of the available spectrum, in spite of the recommendation by Telstra.

In May, the government had announced its plan to auction off the regional 1800MHz spectrum, after the ACMA had recommended an auction be held. The 1800MHz band is used in metropolitan areas by Telstra, Vodafone, and Optus to deliver their 4G networks, but has primarily been used in remote Australia for point-to-point backhaul services. The reallocation of the spectrum will ensure that it is used to bring faster connection speeds to those living in regional areas.

In the same month, the ACMA also published a list of recommendations in its Spectrum Review Report [PDF]. In that report, the Department of Communications and the ACMA called for a move away from the outdated 23-year-old governing legislation, the Radio Communications Act, to a modern system enabling more market-based activity to allow telcos to share and trade spectrum being used for mobile services.

The government in August confirmed that it would be implementing the ACMA's suggestions and begin reforming the legislation, licensing, and pricing of spectrum, with plans to have the new legislation passed by mid next year.

Responsibilities are again split, however, with the minister for communications to provide direction and oversight in forming policy while day-to-day management would fall to the ACMA.

The same overlapping regulatory issues were seen when the Department of Communications interfered in the ACCC's determination on fixed-line pricing for wholesale broadband networks, Epstein added.

The ACCC last week published its final decision on fixed-line pricing, slashing the prices that Telstra can charge its wholesale customers for use of its legacy copper network during the transition to the National Broadband Network (NBN) by 9.4 percent.

While the ACCC had originally planned to reduce prices across seven of its fixed-line wholesale services by just 0.7 percent, its revised draft decision on the price cut said the amount that Telstra charges retailers for use of its broadband internet services would be cut by 9.6 percent from October 2015.

The competition watchdog then amended this to 9.4 percent in its final decision last week.

However, the Department of Communications had objected to the ACCC's decision, saying the ACCC should allow Telstra to recover its costs.

Epstein pointed out on Tuesday that the department's perspective on a telco regulatory issue had once again been at odds with a decision by the ACCC.

"The ACCC's access price reductions appear to conflict with the department of communication's role in supporting one of the NBN's two shareholder ministers," Epstein pointed out.

"This has seen the unusual step of the department arguing against the proposed access price reductions."

Optus had previously argued that the department's submission was inappropriate, voicing concerns that the government should not have made a submission to an independent review.

The ACCC approved the migration plans for Telstra and Optus to move their customers onto the NBN earlier this year.

Gilbert and Tobin's Muys criticised this overlap between government and the ACCC in determining and deploying NBN policy, saying the government has had "unprecedented levels" of involvement.

"Old, tired debates are continuing to go on; we've got heavy government intervention dictating technology choices in infrastructure that will drive complexity, in my view, in the way that it operates; explicit constraints, be it contractual or regulatory, on new investment and new competitors; and we still have the constant calls and clamour from industry from time to time for new regulation in areas like mobiles, like NBN, like online, like ISPs, like net neutrality ... the desire to take away uncertainty, to wrap us in a cotton blanket."

Regulation into the future

Epstein pointed towards the "best-practice" model in the United Kingdom as the way forward: Employing a single, unified regulator for the telco sector.

"Ofcom in the UK ... operates as the combined competition, pricing, and technical regulator for the communications sector," he explained.

"A similar model deployed in Australia could lead to more consistent, effective, and focused decision making that reduces costs and provides transparent strategic priorities, as well as a more holistic and common-sense approach to regulation of the sector in Australia."

Muys agreed, saying, "To David Epstein's comments about regulators: I also agree it's not just a question of the regulation; but the regulator could be simplified, in my view -- I would absolutely support the collapsing of those, and actually the separation of not just telco, but the Harper idea of a combined regulator."

The Harper Review in March this year had highlighted that the laws surrounding competition policy in Australia need to be updated, because "priorities will change as technology changes".

To this end, Epstein recommended establishing an independent market regulator called the Australian Council for Competition Policy -- though not one that would review access and pricing.

"Such a council could ensure the policy settings keep pace with digital and technologic changes, and they could undertake market studies," he said.

"We do not, however, support the establishment of a new single national independent regulator for access and pricing functions: Rather, we suggest that a single-specific regulator for the communications sector would ensure a holistic and consistent approach to regulation of the sector."

Muys said that any future competition regulator should take into account not only price, but also the best ways to allow for technological advancements.

"We need to think about competition as more than just price and value," Muys argued. "It's not just about getting prices lower. Competition is about innovation. It's about disruption. It's about changing the paradigm. That's what we should be trying to encourage in our competition policy, not just driving down prices."

Epstein said that if the ACCC were not disbanded, it could work alongside an Ofcom-modelled communications competition regulator, but with shared rather than conflicting processes.

"Such a regulator could co-exist with the ACCC -- possibly sharing commissioners, fundamental guiding principles or even a supervisory board," Epstein said.

"The political time may be right. A federal government that was embarked on a fresh start, with a renewed sense of common purpose, could simultaneously pick up where Harper left off, draw on several telco-sector reviews, recognise that the ACCC is stretched for the foreseeable future, and begin to look to a world where NBN Co's job is done. This might be a big agenda, but is one a new communications minister could grasp with the backing of a well-informed prime minister."