Malcolm Turnbull is portraying Thursday’s Productivity Commission report on the NBN Co’s greenfield fibre rollouts as proof the National Broadband Network is anti-competitive and uncommercial. He’s massively overstating the case. Mostly.
Investigation No.14 by the commission’s Australian Government Competitive Neutrality Complaints Office (AGCNCO) was triggered when three companies complained that NBC Co was muscling in on the lucrative job of connecting new housing developments to the telecommunications system.
It’s easy work. No explaining the NBN to confused householders. No dealing with complaints from angry householders who reckon that lumbering work boots flattened their prized lavender hedge. Just go in, dig, lay, bury, clear off and collect the cheque.
In pre-NBN days, Telstra was the “provider of last resort”. If no one else bid, Telstra got the gig. But now NBN Co can be a provider of first resort, and that’s the problem.
The three complainants — OPENetworks Pty Ltd, Comverge Networks and Service Elements Pty Ltd — reckon that NBN Co is competing with them unfairly.
Their complaints are wide-ranging. NBN Co is competing in areas that would normally be left for commercial operators. Their hefty government backing, and only having to pay it back at 7%, means they have one heck of an advantage. The tender process that led to the big end of town getting the fibre rollout contracts wasn’t transparent.
They’re also complaining about NBN Co’s pricing model. Traditionally, companies putting in infrastructure would bill the property developer, who would then pass on the cost to home buyers. But NBN Co is providing the infrastructure free to developers, just like it’s laying fibre free to existing premises. NBN Co is instead recouping its costs from retail service providers as part of their NBN access fees.
All in all, they complain, it’s exactly the sort of anti-competitive behaviour by a government entity that the AGCNCO was set up to prevent.
This work isn’t a major component of the NBN. I daresay NBN Co could fiddle with the pricing with little impact on the overall project cost.
But it’s politically sensitive, because it looks like the big NBN-funded contractors are squeezing out salt-of-the-earth Aussie battler businesses.
“The Productivity Commission’s first chance to probe the National Broadband Network has confirmed the $50 billion government-owned communications monopoly is anti-competitive and uncommercial,” Turnbull wrote in a media release.
Except it doesn’t.
On six of the seven bullet points, the AGCNCO ruled that the government’s competitive neutrality policy was not broken. On the seventh, it’s a maybe:
The AGCNCO has found that NBN Co is in potential ex ante breach of competitive neutrality requirements. The AGCNCO recommends that to comply with the Australian government’s competitive neutrality policy:
- 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.
Note the word “potential” in there.
So, to make sure the policy hasn’t been breached, the government needs to quantify the NBN’s non-commercial benefits. They’re the social benefits we keep hearing about, like better health service delivery, education, reduced travel, regional development, blah blah blah, that we all saw the TV adverts.
Once that’s done, NBN Co needs to take that into account, adjust its price model, and make sure its pricing doesn’t breach the policy by unfairly under-cutting commercial operators.
Rather than “proving” anything about the NBN, what AGCNCO has actually asked for sounds an awful lot like the core of a cost-benefit analysis. And isn’t that what the opposition has been asking for all along?
Come on Stilgerrian. You have obviously read the report so you know that the commission was only capable of finding a “potential” violation; due to the fact (from the report)
“This investigation is about a government business activity which is in its infancy
and has yet to produce ‘business as usual’ costs and revenues. Indeed, much of
NBN Co’s pricing model is still being investigated by the Australian Competition
and Consumer Commission’s (ACCC) in relation to the approval of its special
access undertaking (NBN Co 2010a).
As such, the AGCNCO has examined whether NBN Co is, ex ante, pursuing a
business model which could place it in breach of competitive neutrality policy”
So the report basically found that it was pursuing pricing policies that could place it in breech of the competition policy, specifically the 7.04% rate of return which is below commercial returns from similar business (around 10-11%) and even it’s own internally published WACC.
The only way this could be justified is if the other benefits obtained from the NBN co, made up for this reduction in return, hence the request for the NBN to quantify these benefits.
As for the complaint about charging retail providers instead of developers for green field roll outs of fibre, I think the NBN were very lucky to get away with that, and still might be in trouble if the complaint goes to the ACCC instead. It’s borderline “Misuse of market power”.
@Scott: Hence my “maybe”. I think Mr Turnbull is being a bit previous, as they say, to lead with a “confirmed”.
Still, hats off to him. He’s doing his job just fine. He got his interpretation out their promptly to frame the discussion, and few of us will every read the report itself. God it’s dull.
Agreed re the ACCC.
I like Turnbull, and I agree with Stillgherrian that he’s doing his job just fine.
Which is incredible really, selling a dog that you know is infested with fleas and hasn’t been neutered and doesn’t carry a chip, and won’t go on a lead, and barks all night.
But that is what TA has Turnbull doing.
So let me get this straight. The Libs, through Turnbull, are complaining about a lack of competition in the NBN rollout, because the major supplier is acting like a monopoly supplier in terms of actually delivering infrastructure more cheaply than the private sector competitors can.
Not that they are charging like a monopoly supplier, in fact sometimes not charging at all for greenfield sites, but that they are effecting efficiencies that can only accrue to a government backed monopolistic supplier of crucial national infrastructure.
Because some supremely efficient private sector suppliers can’t do it for the same price, and this means that if they did all the supplying we might actually get, I don’t know, the cheapest possible way to roll-out some nation building infrastructure.
Sorry, what was the problem again, apart from it possibly being against some laws which even in the prosecuting fall over from the ridiculousness test?
Hold on, if the NBN roll all this out, it might lead to the NBN actually being really valuable, possibly even multiples of the costs in setting it up.
This is an outrage, Sir.
Whoever those NBN fatcat shareholders are should be ashamed of their good fortune. Why isn’t the government doing this?
D’oh!
Turnball overstates everything all the time , remember UTEGATE Malcolm ??????
@Lord,
Yes he does, but that’s Malcolm. A very unlikely leader indeed. His general disposition and his self interest will always get in the way. May TA stay NOalition leader. He is the current government’s greatest asset. Also may the MSM finally get their act together and start reporting facts not fiction.