Transcript
Check against delivery.
Introduction
I’d like to begin by acknowledging the Traditional Custodians of the land we are meeting on today, the Gadigal People of the Eora Nation, and pay my respects to their elders past, present and emerging. I’d also like to acknowledge and welcome any Aboriginal or Torres Strait Islander people here today.
Thank you for the invitation to speak at today’s Comms Day Summit. I’m pleased to be here speaking directly with members of the telecommunications industry about a topic that I know many of you have been involved in and are eager to know our decision on.
That topic is the ACCC’s work on the economic regulation of the National Broadband Network, specifically the collective effort that has gone into fundamentally updating the NBN special access undertaking, or SAU, over the last two years. The SAU contains the rules by which default terms of access to the NBN are set, and so is a nationally significant piece of Australia’s economic regulation.
I say collective effort as some of you in this room today have likely helped develop the SAU variations submitted by NBN Co or have provided submissions in response to the proposed variations.
The NBN Special Access Undertaking
The SAU process
As part of this process, any update to the NBN SAU requires NBN Co to lodge a variation to the ACCC, which we then publish and invite stakeholders to provide their views on. The ACCC must then decide whether to accept or reject the variation to the undertaking, applying the statutory test and taking into consideration the stakeholder feedback received. We cannot approve it subject to conditions, or make changes to the proposal.
This morning we have published our draft decision on the latest SAU variation, which NBN Co lodged in November 2022. I won’t keep you in suspense any longer.
That draft decision is to reject the November 2022 variation from NBN Co.
We did not come to this draft decision lightly, and our reasons for rejecting it are what I would like to share with you today.
But before I do that, I’d like to explain that in addition to our draft decision, we have today published a letter that NBN Co provided to us after it had considered the stakeholder submissions to our discussion paper. In this letter, NBN Co outlines changes it would be willing to make in any revised variation, should the ACCC decide that it cannot accept the November 2022 proposal. Which is, of course, the situation we are now heading towards.
Should NBN Co withdraw and resubmit a further variation proposal, we will then publish and call for submissions on it.
The Importance of the SAU
The NBN SAU is receiving such detailed attention because it will play such an important role in promoting competition and encouraging efficient broadband markets over its remaining term of 17 years. With the current SAU no longer fit for purpose, it is absolutely critical that we get the right regulatory settings in place for the NBN.
To provide some context on the need for a new SAU for anyone less familiar with it, the current version of the SAU, which has been in place since 2013, only applies to a subset of network technologies, namely fibre-to-the-premises, fixed wireless and satellite. This accounts for approximately one quarter of NBN’s services. Extending the undertaking to cover the other technologies would bring the majority of NBN assets into this regulatory framework. The current version also doesn’t provide suitable incentives to NBN Co to operate prudently and efficiently, due to the revenue controls having become largely irrelevant when compared to the losses that NBN Co reports within its regulatory accounts and inadequate expenditure review mechanisms.
We need to address these issues and other inefficiencies that have emerged within the current SAU regulatory framework if consumers are to benefit from the NBN, and if the broader economic and social objectives of the NBN are to be realised. Australia needs a well-regulated national broadband network to be a world-leading digital economy.
The role of industry throughout the SAU consultation process
A crucial element of this entire process has been engaging with industry stakeholders, to ensure we make the right decisions for updating the SAU.
The early contributions made by stakeholders during the workshops held in 2021 allowed us to develop a set of indicative outcomes for the SAU variation. These have served the ACCC well throughout the process.
I’d like to reiterate these guiding principles, to remind everyone what we are seeking to achieve from this process:
First, as part of the revised SAU, NBN Co has the opportunity to earn the minimum revenues needed to meet its legitimate financing objectives, including to transition to a stand-alone investment-grade credit rating.
Second, we must ensure NBN end-users are protected from price shocks and from prices that are higher than necessary in the later years of the revised SAU.
Third, the regulatory framework should provide incentives for NBN Co to operate efficiently and promote efficient use of and investment in the NBN.
Fourth, retailers need greater certainty over the costs that they will face when using the NBN.
And finally, there should be a clear and robust quality of service framework, so that retailers and end-users know what to expect from NBN services, including a review mechanism so that service standards remain fit for purpose.
I would also like to remind this audience of the positive initiatives that NBN Co has proposed in its SAU variation after considering the submissions that stakeholders have provided to date. These initiatives could bring significant improvements in terms of the competitiveness and efficiency of NBN markets were they to be implemented as part of a robust framework. These positive initiatives include:
- Adopting a price cap rather than revenue cap as the principal regulatory control mechanism, which will provide stronger incentives for NBN Co to innovate and grow demand.
- Resetting the value of the regulatory loss account, known as the ICRA, to $12.5 billion and closing it to further losses, which will provide more certainty over allowable revenues and costs to retailers.
- Moving towards a simpler price structure, which will help to encourage more efficient and competitive retail markets.
- Building in mandatory opportunities for NBN Co to consult meaningfully with its customers about how it allocates its capital and operating budgets, as well as with consumer advocates on how to better support low income and disadvantaged consumers.
- Bringing both service quality and pricing into the scope of the SAU so matters can be assessed according to both measures.
Given the value that stakeholder feedback has brought us to date, we are again calling for open and constructive engagement from industry as we look to address the important issues that remain outstanding.
Our reasoning in making the NBN SAU draft decision
Importantly, we’ve published the full list of reasons for our draft decision on the ACCC website this morning, to ensure transparency, and to provide a record of the draft findings we have made across the board.
I would like to highlight for you now the draft findings that we have made that have led us to today’s decision.
These findings have significant ramifications and will need to be addressed in any future variation proposal if it is to be capable of acceptance. At this point, too, I should acknowledge that while our draft decision is to reject this variation, we also found a number of instances in the November 2022 SAU that improve the prospect of a future SAU variation being proposed with acceptable outcomes.
There are four draft findings that have led to today’s decision. The first two go to whether the varied SAU could result in appropriate regulatory settings over its remaining 17-year term. The remainder relate to residual concerns that we hold for the access arrangements that would apply in the first regulatory cycle that runs over the 2024, 2025 and 2026 financial years.
Firstly, we have found that the principles that had been proposed to guide regulatory determinations from 2032 would require revenue allowances that always gave NBN Co the opportunity to achieve a high credit rating, even if it invested or operated imprudently or inefficiently. This would fundamentally create the wrong incentives for any regulated entity.
Secondly, we have found that the process for making regulatory determinations would not support timely and reasonable decision making. We could likely have one or the other, but not both. It’s important that we have both for the SAU to be effective.
Thirdly, we have found that the proposed benchmark service standards in the first regulatory period would be quickly superseded, and the SAU variation would not commit NBN Co to consulting retailers when prioritising its service improvements over the first regulatory cycle. That is, over the 2024, 2025 and 2026 financial years.
Further, the pricing model proposed in the SAU variation leaves open a very broad range of pricing outcomes when using the standard 50 megabits per second wholesale offer over this first period. Retailers may not be able to efficiently manage this cost uncertainty without further support from NBN Co given the retail market’s clear preference for simple tariffs.
Without this support, retailers would likely incur otherwise avoidable costs to identify which of their customers on 50 Megabits per second plans regularly use data intensive applications such as streaming during the evening busy hour, and change the wholesale offer they use to supply them.
Any inefficient costs would likely be passed through to consumers in some fashion, be it higher retail prices, lower busy hour speeds or more stringent fair use policies.
Taken together, our concerns relating to the first regulatory cycle are that not enough would be done in the near term to
1. address the issues that drive pockets of poor consumer sentiment with NBN services;
2. take inefficient costs out of the retail supply chain; and
3. promote retail competition.
All of which will be very important to keep retail prices lower and the customer satisfaction scores higher, that would drive efficient use of the NBN. The implications of not taking opportunities to boost efficiency now would likely persist beyond just the first regulatory cycle.
We’ve also called for NBN Co to take specific actions before we make a final decision on an SAU variation.
The first is to commit to resolving the ongoing competition concerns with network-to-network interface charges which retailers continue to raise as impediments to expanding their operations over the NBN and competing more directly with incumbents.
The second is for NBN Co to publish its initial pricing roadmap and supporting worksheets.
By NBN Co completing these actions, it would allow the SAU consultation process to focus on the core issues that go to the long-term regulatory framework, and allow stakeholders to contribute on a more informed basis.
As I mentioned earlier, while there are several issues for NBN Co to address we did find some instances in the November 2022 SAU that improve the prospect of an SAU variation being proposed with acceptable outcomes. We reached these findings either because the approach that was specified in the SAU variation is reasonable in the circumstances, or we considered that targeted mitigations can be established to avoid the risks that stakeholders had identified with what had been proposed by NBN Co.
The most significant of these matters relate to the product and pricing proposition, where we found that it would be reasonable for the AVC price of the standard 50 megabits per second wholesale offer to increase by $5 to $50 per month. We also found it would be reasonable for the cost of wholesale offers to progressively increase in nominal terms over the medium term, and for CVC charges to be phased out over the first regulatory cycle as NBN Co has proposed.
We came to these findings because the proposed approach would be necessary for NBN Co to have a reasonable opportunity to recover its efficient forward-looking costs. We noted that as matters stand, NBN Co’s revenues are materially below efficient cost levels and that growth in demand alone could not reasonably be anticipated to balance this shortfall.
We believe it would be better to begin an orderly transition to efficient pricing now, ensuring that it occurs gradually over a suitable timeframe, so that households and businesses are protected from sharper price increases in the future.
We also found that specific measures could be established to support retailers in efficiently managing the cost uncertainty that would arise from keeping CVC charges on some residential grade access products for the next three years. In saying this, we acknowledge that additional changes would be needed for the SAU variation to give assurance that these measures would be developed and be effective.
Here we have asked NBN to further consider introducing a cap on the combined charge for buying a service under the standard 50 megabits per second wholesale offer. This is so that a service that is acquired under this wholesale offer would not cost more than the higher bandwidth 100 megabits per second wholesale offer, and the potential costs for these services would be limited to a more reasonable range.
We are raising this for consideration alongside a proposal that NBN Co has made to retailers in commercial discussions. This would keep the onus on retailers to each manage their exposure to residual cost uncertainty for those wholesale offers still the subject of CVC charges, but with potential for them to access recent CVC utilisation data on a service-by-service basis that could assist them to do so. This would entail NBN Co developing a new application programming interface into its business systems to provide these data to retailers, and each making other investments in their IT systems and provisioning processes.
What is next
The ACCC remains resolute and committed to receiving an SAU variation proposal from NBN Co that we can accept within a reasonable timeframe.
That is, one that can be supported with regard to the statutory tests, which at its heart would provide NBN Co and retailers with what they require to invest and operate efficiently in the services that are delivered over the NBN. One that promotes competition, and where the ultimate beneficiaries are the millions of households and businesses that will continue to rely on the NBN for their communication needs into the future.
Having made today’s draft decision to reject NBN Co’s most recent proposal, we are now calling for submissions on our draft decision along with the draft findings than underpin it. We acknowledge that NBN has indicated that it would make a number of changes in a revised proposal. We welcome NBN Co being prepared to make changes that would result in a revised SAU variation that is capable of acceptance. We are additionally asking stakeholders for their views on whether they would support the ACCC accepting an SAU variation that incorporated the further changes that NBN Co has proposed in its letter to the ACCC. We ask stakeholders to share their views on this with the ACCC by the end of this month [May 2023].
I acknowledge this process has now been running for two years and recognise that everyone in the industry would like regulatory certainty. I also acknowledge that although we have consulted on both NBN’s proposals to date, it is likely that NBN will submit a further proposal and we are required to consult on that proposal as well. Given the national significance of this regulation and the important role it will play into the future, the ACCC must run a proper process that allows for consultation in response to NBN’s proposals. The ACCC cannot accept an unsatisfactory SAU variation that would do far greater long-term harm – indeed it needs to be in the long-term interests of end users.
Our hope is that a revised proposal addresses the issues raised in our draft decision, as well as any material issues raised in this consultation. Should that occur, we will look to run any further consultation in a streamlined manner and move to a final decision in the most timely manner possible. We will have better visibility of this once a new variation proposal is lodged.
We look forward to ongoing productive engagement with stakeholders over the next month as we receive submissions on our draft decision, as well as with NBN Co in meeting a satisfactory outcome for the revised SAU in the near future.
Thank you.