In a move that sadly doesn’t really surprise too many, the Australian Competition and Consumer Commission (the ACCC) has handed down a draft ruling which will not declare a wholesale domestic mobile roaming service. If it had done so, carriers would have been required to open up their mobile networks to other carriers at set, wholesale rates. The carriers that had the most to gain from this were those that would have been able to access Telstra’s regional and rural area coverage which in some places is the only network available.
As you may imagine, Telstra was dead-set against this; its network is its major selling point in the bush, where it offers customers the only option for mobile connectivity in many places. Their argument was pretty straightforward:
“Regulating mobile roaming would take away our ability to offer customers a better experience and bigger mobile network than any of our competitors. Regulated roaming would mean there was virtually no reason for any mobile phone company to investment in new coverage or better technology.”
What’s the argument?
Part of Telstra’s contention is plainly so; if the likes of Optus, Vodafone, Pivotel and others can access Telstra’s infrastructure in places where it offers the only coverage, there’s no real incentive to invest in building alternative infrastructure in those places. Yes, that’s probably true.
However, in order to understand why Telstra’s stance isn’t quite so reasonable as it may first appear, we need to understand Telstra’s history. Telstra was once a government owned monopoly mobile provider, and received not insignificant public assistance.
Further, it continues to receive funding from the public purse – since 2006, Telstra has received around $2 billion in government subsidies to build regional networks, and yet it only spends a small fraction of that amount – around $150m per year – on mobile in regional areas.
In other words, Telstra’s vastly wider geographic coverage was made possible with public funds, so the argument is that others should be able to derive some benefit from it. Why unnecessarily duplicate infrastructure when they can contribute to the already-existing infrastructure through payment of regulated wholesale access fees?
A missed opportunity
Telstra’s competitors, who would stand to gain much by a declared wholesale domestic roaming service, are understandably disappointed with the ACCC’s draft ruling. Vodafone’s chief strategy officer Dan Lloyd calls it a missed opportunity, noting:
The ACCC’s disappointing draft decision on mobile domestic roaming is a missed opportunity for regional Australia. It denies the benefits of increased coverage, competition and choice to Australian mobile customers, especially hundreds of thousands of Australians living in regional and rural areas.
Too many Australians will continue to be held hostage to Telstra, and will have no choice but to pay Telstra’s mobile premium which totals $1.4 billion per year.
The telecommunications divide between the cities and regional areas will only continue to widen, as no other operator will be able to close the coverage gap between Telstra and the rest of the industry.
Telstra will continue to receive a disproportionate share of taxpayer subsidies, and initiatives such as the Mobile Black Spot Program will not be able to realise their full potential.
It’s hard to disagree with that view; where Telstra has received significant public investment to build its regional network, it only makes sense that there should be a more widely shared public benefit for doing so. In the present case, customers of other networks (or people who would rather be customers of other networks) would be able to derive the public benefit – coverage built with public money – without having to pay the Telstra price premium.
Other carriers agree with Vodafone’s take on this. Pivotel, whose primary focus is in the satellite market, shares the view that this is a missed opportunity; while much of their product is satellite based, it would like the opportunity to offer a more cost-effective coverage option to those who are within a mobile network footprint which – under current rules – it’s simply uneconomical to access.
ACCC can see the issue – but not enough of one to intervene
The most frustrating part is that the ACCC can clearly see and identify the issue at hand. In the draft ruling, it noted:
“Telstra clearly has an advantage in competing for consumers who value or require regional coverage, owing to its extensive geographic network coverage. Further, due to the low population density in regional Australia, and the high costs of extending a mobile network in these areas, Telstra is likely to retain a coverage advantage in the future.
This means that some consumers are likely to have a limited choice of mobile provider, and in many regional and remote areas, Telstra is the only viable network provider. However, we find that these factors alone are not sufficient to justify declaration of a roaming service.”
Further, the ACCC notes that some of Telstra’s prices are higher than its competitors (an obvious conclusion), though noting that effective competition in the national market does constrain Telstra’s pricing.
There’s also the fact that it cost the same to make a call from Mt Isa to Melbourne as it costs to make a call from Sydney to Melbourne — i.e., there’s no price premium per se to make a call from a regional area, and thus it’s hard to argue that Telstra (or its coverage advantage) is inherently anti-competitive.
These findings mean that there isn’t really a strong imprimatur to declare the proposed wholesale domestic roaming service.
Where to from here?
Just because a wholesale domestic roaming service hasn’t been (and may not be) declared doesn’t mean that domestic roaming isn’t occurring; it does occur, and has done for years. Vodafone, for example, has roaming agreements in place with Optus to extend its coverage in some areas where Vodafone doesn’t have coverage. It has — in the past, at least — had roaming agreements with Telstra, too, to gain access to its networks in parts of Victoria and New South Wales where it didn’t have any.
The difference today is that there’s no declared wholesale rate, meaning that if Vodafone were to seek roaming access to Telstra’s network, it would have to pay whatever price premium Telstra saw fit to charge. In all likelihood, those prices would make it uneconomical for Vodafone to do so.
For those looking for competition in Telstra-only areas, the chances just reduced significantly, though this is just a draft ruling. It is possible, though unlikely, that the ACCC may change its tune before a final decision is made.
Are you in an area where Telstra offers the only coverage? What are your thoughts?