On 5 May 2017 the Australian Competition and Consumer Commission (ACCC) issued a draft decision that it will not declare any mobile roaming services (that is, services allowing the customers of one mobile network to use the services of another in areas where the first network does not have coverage). A declaration would have had the practical effect of requiring Telstra, as the network operator with the largest geographical reach, to provide roaming services to its competing network operators, currently Optus and Vodafone, in those areas where those competitors do not have coverage.
The ACCC decided that, notwithstanding Telstra may charge a premium to its customers for the extended coverage it provides, it was not convinced that consumers would be better off if roaming was declared. In particular, if a declaration was made, prices could potentially increase for all consumers (or consumers in regional and remote areas) and the investment decisions of competitors (particularly Optus) might be distorted to the detriment of consumers.
Although the decision will not be finalised by the ACCC until approximately July 2017 (and it is theoretically possible that the ACCC could change its mind), if the decision is affirmed it is likely Telstra will remain the Australian mobile network operator (MNO) able to offer services with the greatest geographical reach for quite some time. The stock market has recognised the competition benefits to Telstra of this, with Telstra's share price climbing rapidly on the day the ACCC's draft decision was released.
Telstra's competitors in the mobile services market will need to find new strategies to compete, based on, for example, other aspects of service, add-ins or bundling, given this market dynamic.
Background to inquiry
Under Part XIC of the Competition and Consumer Act 2010 (CCA), the ACCC is able to declare eligible telecommunications services, including mobile roaming services, if it first holds a public inquiry and reports on that inquiry.
Over the last few years, Vodafone, the smallest of the three existing Australian MNOs, has agitated for the ACCC to use its Part XIC powers to consider the declaration of mobile roaming services. In October 2016, arguably largely as a result of Vodafone's pressure, but also as a result of suggestions from the 2015 Regional Telecommunications Review and the House of Representatives Standing Committee on Agriculture and Industry (amongst others), the ACCC kick started the declaration process by issuing its "Domestic mobile roaming declaration inquiry" discussion paper.
The ACCC has considered the declaration of mobile services on two prior occasions, in 1998 and in 2005. In 1998 the ACCC concluded that there would be competitive benefits from mobile roaming services but that these services would be offered through commercial negotiations without the need for regulatory intervention. In 2005 the ACCC was again persuaded of the benefits of such services but also again concluded that there was no need for regulatory intervention at that time.
The October 2016 discussion paper hinted that the ACCC might reach a different conclusion this time round.
Discussion Paper
The CCA requires the ACCC, when looking at whether to declare a service, to consider whether the declaration will be in the long term interests of end-users (LTIE), by achieving the following:
- the promotion of competition in markets for relevant services (meaning the ACCC needs to define the relevant market or markets, assess the state of competition and look at what impact the proposed declaration would have);
- any-to-any connectivity of services (not a particularly meaningful consideration, given interconnection arrangements already exist); and
- the encouragement of the efficient use of, and investment in, infrastructure by which the relevant service is supplied or capable of being supplied.
As stated in the ACCC's discussion paper, the actual population coverage of the three Australian mobile networks (Telstra, Optus and Vodafone) is very similar, though there is a significant difference in geographic coverage. Telstra's mobile network has geographic coverage that is approximately 1 million square km greater than the other two networks; though only 0.8% of the Australian population lives in the additional coverage areas. Therefore the ACCC's discussion paper largely focussed on whether that difference in geographic coverage impacts competitive and efficient outcomes in mobile services markets and the impact that a declaration would have on these outcomes.
The discussion paper sought views on the impact of a declaration on competition in the market for wholesale mobile services and the national retail market for mobile services. In the latter market, the ACCC speculated that a declaration could benefit most consumers; first, consumers living in an area with only one existing MNO (who would obtain access to competing providers), second, consumers in regional areas generally (because of the increased ability of retail providers to offer greater continuous service) and finally even consumers in metropolitan areas, who value or require access in regional areas. Consumers could also generally benefit from service providers competing more vigorously in areas other than coverage.
More difficult questions arose in the discussion paper as to whether a declaration would encourage investment in infrastructure, particularly whether a declaration would limit the incentives for further investment (and upgrade/maintenance expenditure) in mobile infrastructure in geographic areas outside those where coverage is already provided by each of the three mobile networks.
To say that the ACCC's discussion paper attracted attention is an understatement. Telstra's submission to the ACCC, and its public commentary, argued that a declaration would have a significant negative impact on its investment in its mobile network and therefore would be detrimental for consumers in regional and remote areas. Many politicians came out in support of Telstra's position, including the current Minister for Communications, as well as consumer and regional advocates, such as the Australian Communications Consumer Action Network (ACCAN) and even some of its competitors, such as Optus. On the other hand, Vodafone and, following its recent acquisition of 700 MHz spectrum licences for use for its own mobile network, TPG, supported a declaration. In short, those in favour of a declaration believe that competition has been stifled in the mobile services market as Telstra has a natural monopoly in the areas of Australia where it is the only operator and has used this to limit choice and impose higher prices on consumers.
ACCC's conclusion: Declaration not required
Although not expressly stated in the draft decision, it is clear that the release of the draft was delayed at least in part by the announcement by the Australian Communications and Media Authority (ACMA) on 12 April 2017 of the results of its auction of the residual licences in the 700 MHz band which had remained unsold following its 2013 auction of spectrum in that band. TPG was the successful purchaser of a licence of 2 X 10 MHz of that spectrum for approximately $1.26 billion, a price significantly in excess of the reserve. As the auctioned spectrum, like that successfully auctioned in 2013, will be used to provide 4G mobile services, it is clear TPG's purchase will have significant ramifications in the Australian retail mobile services market, because it introduces a new fourth competitor in its own right in this market. TPG's entry in the retail market was a factor taken into consideration by the ACCC in its draft decision.
In short the ACCC, in determining not to pursue a declaration, found:
- Telstra has a clear advantage in relation to consumers that value or require regional coverage and this advantage is unlikely to diminish in the future, given the high costs of extending networks in regional and remote areas, particularly having regard to low population density. Notwithstanding that this means that some consumers are limited to one provider, uniform national mobile pricing means those consumers do still benefit from the greater level of competition that exists in urban areas.
- A declaration will not promote competition (even if limited to geographic areas where Telstra is the only operator), including because:
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- It would reduce the benefits to an MNO in competing on coverage, meaning investment in extending and upgrading networks would be likely to reduce.
- Simply because consumers who value coverage would have greater choice, this does not mean that competition would generally improve. In the ACCC's view it is not clear what impact the declaration would have on retail pricing; pricing could increase and also differentiated pricing could be introduced to the disadvantage of regional consumers.
- TPG's spectrum purchase indicated that a declaration was not necessary to reduce barriers to entry to the market (and, furthermore, the ACCC did not believe a new entrant such as TPG needs to provide services in areas which are currently "Telstra-only" to be effective).
- On the vexed question of the impact of a declaration on investment in infrastructure, the ACCC largely dismissed the argument put forward by Telstra that it would cease to invest if roaming was declared. But it was concerned that a declaration would have a distortionary impact on Optus' investments, noting that Optus has indicated it intends to invest to improve its network quality and coverage to compete with Telstra.
The ACCC did issue a warning that, if roaming was not provided to TPG in metropolitan areas – where there should be wholesale roaming competition – it would be concerned.
What next?
The ACCC is seeking comments on its draft decision by 2 June 2017. No doubt Vodafone, TPG (and others) will again vigorously put forward their arguments in favour of a declaration, though it would seem that – at this stage – these are unlikely to change the ACCC's mind.
If the ACCC's final decision is not to make a declaration, any disgruntled MNO has limited legal options to dispute this. Each will need to assess how it will operate its network in light of the outcome.
Interestingly the ACCC raised, in the last part of its draft decision, suggestions for alternative ways in which competition in the retail mobile services market in regional areas could be improved:
- Increasing transparency regarding network quality, expansions and improvements: The ACCC appears to believe this could be achieved at least in part by expansion of its record keeping powers, with the ACCC collecting, reporting and tracking the accuracy of such information.
- Direct government investment or regulation to require access to infrastructure to assist in reducing costs: This could, for example, take the form of any future Government mobile black spot program requiring roaming to be provided on towers constructed with the benefit of the funding and providing access to the National Broadband Network (NBN) fixed wireless infrastructure. Changes to the current facilities access regime (allowing regulated access to particular infrastructure) could also be contemplated.
- Greater ACCC involvement in spectrum allocation decisions: The ACCC believes that a greater degree of involvement of the competition regulator is warranted because of the complexities involved in determining impacts of allocations of spectrum licences on efficiency and competition.
It would be surprising if stakeholders generally enthusiastically supported these suggestions. Some would arguably do little to assist – for example, even the ACCC acknowledges that access to the NBN fixed wireless infrastructure would do little to expand the coverage of Australia's existing mobile networks. Others seem to reflect a push from the ACCC for greater regulatory power – for example, section 50 of the CCA already applies to spectrum licence allocations and there seems little reason to impose a regulatory obligation on ACMA or the Minister for Communications to take into consideration the advice of the ACCC, as it would be assumed each already considers any competition advice the ACCC provides.
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