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?