This post first appeared on the 13th May 2019 in the Australian telco newsletter CommsDay under the heading “TPG continues to be the whipping boy of policy inconsistency”.

TPG became a successful operator through keeping to itself while building its business through aggressive competition, investment in its network and smart acquisitions. As an industry outsider TPG epitomised the disruptive challenger that technology industries need to drive competition and investment.

However, since September 2013, when TPG announced it was going to build a FTTB network as an alternative network to the NBN, it has been the target of continuing intervention by government policy makers and regulators – stakeholders who would normally be looking to promote investment and competition.

NBN Co was clearly spooked by the FTTB rollout that was planned to cover 500,000 urban premises. In April 2014, NBN Co Chairman, Ziggy Switkowski, publicly stated that NBN Co needs to be a monopoly wholesale provider for it to be economically viable and that it was committed to upgrading technologies where alternative companies (ie. TPG) were not.

“NBN is a commitment that will endure for a long time and has an upgrade path built in; alternative companies may not have the incentive to do so,” Dr Switkowski told ABC Radio.

A complaint was made to the ACCC in April 2014  that TPG’s network rollout plan was in breach of the so-called NBN “level playing field provisions” enacted by Labor in 2011. The Coalition’s Expert Panel on the NBN, lead by Dr Michael Vertigan, also weighed in by recommending the ACCC investigate regulation of vectored DSL services being used by TPG. This recommendation was completely at odds with other statements from the panel which encouraged the development of alternative superfast network providers entry.

Did the Coalition Government and NBN Co successfully ‘spike’ the Vertigan Panel’s recommendation to force this spurious recommendation for an ACCC investigation? We may never know.

The ACCC dismissed the “level playing field” complaint in September 2014, but it nevertheless announced an enquiry as recommended by Vertigan into regulation of vectored DSL services. The Coalition government also introduced compulsory licence conditions that would force TPG to split its wholesale and retail delivery components of the FTTB service. Such heavy-handed regulation is usually reserved for large dominant incumbent telcos. But in Australia it was perversely used to thwart TPG’s efforts to compete with NBN Co, the new monopoly provider.

In July 2016, the ACCC made its final decision that would see regulation imposed on all superfast 24Mbps+ fixed broadband services. The Coalition Government also announced a new levy to target the same services to compensate NBN Co for its loss making regional services. These regulations made it very difficult to profitably rollout the FTTB network and TPG  admitted publicly that it had no projections to increase the build beyond 115,000 premises in August 2017.

TPG had lost this battle with NBN Co not through competition but because of targeted  government action. However, in line with its disruptive and innovative spirit, TPG announced it would build a national mobile network in April 2017. Telstra’s share price immediately dropped by 7% as the market anticipated increased competition in the Australian mobile market.

But NBN Co was also concerned. Bill Morrow, CEO of NBN Co, admitted in October 2017 that the NBN business model was under threat from wireless broadband.

“Forget about 5G for a moment, even the antenna technology using 4G is a viable alternative to NBN where the towers are already up”, he said.

TPG commenced building a wireless network in 2017 using Huawei equipment. Later statements from TPG indicated that the network was planned to consist of 1500 antenna sites and use the latest small cell technology to provide high speed wireless services. 

TPG took an even bigger step in August 2018 when it announced a merger with Vodafone. TPG’s plans to build its own mobile network were undoubtedly a factor in getting the two parties to get to a mutually agreeable deal. The threat of more competition for Vodafone undoubtedly lowered the price they were willing to accept for such a merger to be completed.

But the merger coincided with the ACCC getting quite excited about the prospects of alternative wireless networks as a way to keep NBN Co honest. NBN Co’s monopoly network’s service standards and high pricing had become a major issue. The ACCC wanted competitive pressures on NBN Co to ensure the monopoly would be forced to respond.

Rod Sims, the Chairman of the ACCC, espoused these views clearly in his comments supporting NBN bypass by wireless operators in a conference address in October 2018 :

“So for those [providers] with an alternative mobile or wireless network, it may be more cost-effective to offload some fixed NBN data traffic onto their own network (where consumers have a hybrid modem) or seek to supply some services entirely over their own mobile network, completely bypassing the NBN,” he said.

Ironically, given the ACCC decision to declare superfast fixed broadband services in 2016, Rod Sims went on to say, “What we must never do, however, is seek to restrain others in order to protect the NBN business model. This would be a disaster for consumers”.

The ACCC’s approval for the merger looked in doubt when it announced in December 2018 it had preliminary competition concerns. TPG’s mobile network plans (and actual rollout commencement) had seemingly convinced the ACCC that it was on track to become the 4th mobile operator in Australia. Faced with the prospect of being thwarted again by the ACCC again, TPG announced in January 2019 that it had ceased building its network. TPG claimed the ban was independent of the planned merger with Vodafone, but rather caused by the Australian Government’s ban on the use of Huawei for 5G networking for national security reasons.

Last week’s formal rejection of the merger by the ACCC is based on a view that TPG would restart its wireless network build due to a “commercial imperative … to deliver both fixed and mobile services at competitive prices”. By specifically referencing “fixed” services, the ACCC now seems to be pushing for the 4th wireless network as a way to keep NBN honest as well as sharpening up mobile competition. The ACCC appears to be taking a converged fixed and mobile services view of the broadband market where wireless based services can be substitutes for fixed broadband. Such a market structure would definitely challenge the NBN Co fixed broadband monopoly.

COMPLICIT?

The irony that the ACCC was complicit in the actions by the Coalition Government and NBN Co to thwart TPG’s FTTB network through regulation in 2016, but in 2019 is now using its powers to block a merger to encourage the build of a converged wireless broadband to compete with NBN Co is overwhelming.

Is the ACCC trying to correct an earlier policy error that locked in the NBN Co monopoly by taking a hard line on the TPG – Vodafone merger? The ACCC should know that market structures are path dependent – earlier policy interventions are very hard to reverse and as a result the consequences for competition are large. The last 10 plus years of NBN policy mis-steps are a classic example.

Could the same outcome be achieved by the ACCC seeking undertakings from the merged TPG – Vodafone company? A commitment to build a small cell wireless network designed for both fixed and mobile broadband services would enhance competition in a converged market. Such a network would help to keep NBN Co honest much like the TPG FTTB network would have originally.

Whatever the answer regarding the ACCC’s intentions and plans, TPG has been on the receiving end on both occasions. The extent to which TPG, the most successful challenger and disrupter in Australia’s telco industry, has been the victim of policy and regulatory decisions is an indictment on the Australian telecommunications regime.

HK COMPARED

When I left Australia in 2015 to join Hong Kong Broadband Network, a company similar to TPG that has disrupted the larger tycoon backed incumbents to become the number two telco in Hong Kong, I could never have contemplated the obstacles that would have been thrown in the path of TPG.

Thankfully, Hong Kong’s telco policy makers realised long ago it is best to stay out of predicting winners and letting market forces drive innovation and investment. As a result, Hong Kong’s  residents now get some of the best and cheapest broadband anywhere in the world, unlike Australia’s.

Disclosure : I would like to declare that I have no relationships with any of the team at TPG. I have never actually met David Teoh or any of his TPG colleagues in my time working in the Australian telco industry with Siemens, RequestDSL, AAPT and NBN Co and I have never had an interest in TPG shares.

The post Yet Another Slapdown for TPG appeared first on Gary McLaren.

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