I have been worrying about competition in broadband for some time.
Yesterday a report commissioned by CEDA and written by me on broadband — “The Local Broadband Imperative: Appropriate high-speed Internet access for Australia” (available here) — was released.
Specifically, I am concerned that if it were valuable to invest in better broadband — say, optic fibre to the home — then the problem we face is that this decision is largely in the hands of one firm — Telstra. To solve this, I have suggested, (i) breaking up Telstra, (ii) separating the cable network from the rest, (iii) privatising the copper pair; or (iv) regulating access to the copper pair more stringently.
None of these seem likely and at the moment we have a strange debate between the regulator and Telstra with Telstra refusing to make more investments until it receives protection from competition. This seemed frustrating to me as we appeared to lag behind the world in broadband investment. Moreover, there was a bunch of hypocracy in the debate as Telstra when it sought access seemed to dramatically change its tune.
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Building on all of this, I have come to the conclusion that, given the constraints we face today, that the debate is all wrong. Put simply, the whole idea that we need a national solution to broadband is misplaced. The constraints are all in the last mile and hence, from a supply perspective, we need lots of local solutions. Moreover, the uses for broadband are primarily social rather than content driven. Once again, since social interractions tend to be local, so demand for broadband will likely vary from location to location.
There are many implications of this. First, no universal service obligation is required for broadband. Second, we can just ignore Telstra. If the investment does not need to be national in scale then we don’t need Telstra’s national presence. Smaller companies can do the job.
But there are challenges. If a smaller company wants to connect up a neighbourhood to a fibre network, it needs to connect to the Internet. This means laying lines in conduits and getting access to them. It also means connecting up those lines in exchanges; owned and operated primarily by Telstra.
What that means is that to enable local competition, we need some tough regulatory interventions to ensure a level playing field. Contrary to perceptions, broadband is one of the least regulated areas of telecommunications at the moment. I suggest that given the difficulties in generating incumbent investment, it is time for that attitude to change for the ACCC and Federal government to take a tougher stance.