Telecommunications Regulatory Background Paper
...r “Appendix 2” illustrates the relationship of demand and pricing, as well as the Australian pricing strategies comparing with other countries. 4.2 Competition and Deregulation Most telephone companies or carriers were a government monopoly that had become inefficient. There are many ways a large monopolist company can manipulate prices and drive new entrants to bankruptcy. Without competition a monopolist can increase prices, and extract exorbitant profits while providing poor services (Green 2003). As a result, most governments have taken measures to protect businesses and consumers with some form or price control and to prohibit anti-competitive conduct services. In Australia, there are a number of indicators that the ACCC can refer to in determining whether competition is effective in a given market. These can be based on either market structure characteristics or on market outcomes. Market structure relates to the cost structure and demand conditions. Market outcomes include changes in the retail price paid for telecommunication services, in retail and wholesale prices associated with the introduction of competition, and in the extent of the gap between price and full attributable long-run cost. It is found that the effectiveness of competition varies across different market areas, ranging from substantially ineffective in local call services to being relatively competitive in the market for mobile-to-mobile services (ACCC 2001). Deregulation started with AT&T in the United States in the early eighties. Most of Europe did not follow until 1998. In some countries, deregulation led to unprecedented growth. Australia, in line with most OECD countries, has been gradually liberalising its telecommunication industry. The Australian Government adopted a phased approach to the introduction of competition. In 1991, the first part of deregulation occurred with the freedom of choice to buy “customer premises equipment”. In 1994, a duopoly replaced the former Government monopoly; and in July 1997 the telecommunications market was fully deregulated with all restrictions on the number of carriers removed. The 1997 regulatory framework is designed to promote the long-term interests of ‘end-users’ of telecommunications services; and the efficiency and international competitiveness of the Australian telecommunications industry. There are three main types of industry operators subject to regulation under the new framework (ACA, http://www.aca.gov.au/ authority/overview.htm): • carriers; • carriage service providers; and • content service providers After deregulation, industry self-regulation is encouraged in all areas, including access, technical standards, interconnection standards, and consumer and customer service standards. Government regulators have powers to intervene if industry self-regulation is not working effectively in specific instances. Increasing competition leads to more new industries, which means that there are more jobs and faster economic growth. Small businesses are becoming more robust, they are now more able to operate and expand domestically by using affordable sophisticated information processing equipment and communications services were previously available only to large businesses. The employees are able to maintain and improve current job skills are better trained, they learn every day using new technologies. Experience in Great Britain and the United States has shown that competition in the telecommunications industry works and increases efficiency (Yildirim 1997) (Cruickshank 1997). It is believed that to a certain extent, Australia’s relatively late start in deregulation has enabled it to learn from other countries' mistakes. 4.3 Broader Issues Despite the Australian Government have taken significant steps towards developing competition in many telecommunications markets, competition has proved to be more difficult to implement than it was envisaged. Buddle (2002a) suggested that while the increase in regulators and legislative reform is certainly encouraging, new technologies and services are moving faster than the bodies that regulate them. The government has accepted the failure of its regulatory policies in that ACCC commented that the effectiveness of competition has tended to vary across different telecommunications markets and, in many instances, the emergence of effective competition appears to be some time away. In fact, competition has not developed as fruitfully as originally hoped when the industry initially opened up to full competition (ACCC 2001). Over the last decade Telstra has focused its attention on the voice-based market. It is in this market that wholesale prices, terms and conditions make it unlikely that competition will succeed. Telstra has not given the same careful attention to the data market, where a far more liberal and competition-friendly wholesale regime is in place (Buddle 2002b). National infrastructure is a natural monopoly and the government will need to address this issue urgently, before the full privatisation of Telstra. The unbundled local loop issue is critical to competition in telecommunication markets as it provides the original government telecommunications company significant market power. The cost of laying cables to each subscriber is huge and no new carrier can afford to duplicate the copper cable (Green 2003). Both Optus and AAPT have indicated they will not invest further in nationwide infrastructure projects. However, Two-thirds of consumers and 50% of businesses do not want full privatisation (Buddle 2002b). Another restrictive practice of Telstra is to stop, or delay, new carriers getting access to the copper cables, but to sell a service only. This may not suit new entrants who want to use new technologies. Buddle (2002c) suggested that Telstra has won the battle in the traditional telco business. Their delaying tactics have paid off. We saw companies went under (One.Tel, WorldxChange, dingo blue) or rationalised (Hutchison, RSLCom, Link Telecoms). There was no money to be made in resale, due to the economically unviable wholesale conditions for voice-based products. Furthermore, thanks to some very clever tactics, Telstra was able to rebalance its tariffs. 5. References ACCC (1999a) “Anti-competitive conduct in telecommunications markets – an information paper”, Australian Competition and Consumer Commission, August. ACCC (1999b) “Review of Price Control Arrangements”, discussion paper, Australian Competition and Consumer Commission, September. ACCC (2000a) “Review of Price Control Arrangements”, discussion paper, Australian Competition and Consumer Commission, September. ACCC (2000b) “Review of Price Control Arrangements”, an ACCC Draft Report, Australian Competition and Consumer Commission, December. ACCC (2001) “Telecommunications competitive safeguards – Report 1”, ACCC Telecommunications Reports 2000-2001. ACCC (2003) “Bundling in Telecommunications Markets – An ACCC Draft Information Paper”, January. Consumer Protection and Service Standards (1999) “Telstra Carrier Charges – Price Control Arrangements, Notification and Disallowance Determination No. 1 of 2000 made under the Telecommunications Act 1999”. Asia-Pacific Telecommunity (2000) “Proceedings of Asia-Pacific Symposium for Regulators” 6-7 September 2000, Bangkok Thailand. Bain, J.S. (1956) “Barriers to New Competition” Cambridge, MA: Harvard University Press. Buddle (2002a) “Global – Regulatory – Deregulation”, Web Report http://www.budde.com.au/TOC/TOC2611.html, Paul Buddle Communication. Buddle (2002b) “Regulatory and Competition Australia - 2002-2003”, Web Report http://www.budde.com.au/Static/PressReleases/Regulatory.html, Paul Buddle Communication. Buddle (2002c) “Telecommunications Industry Australia – 2002-2003”, Web Report, http://www.budde.com.au/Static/PressReleases/Industry.html, Paul Buddle Communication. Cruickshank, D. (1997) “Promoting Competition in Services over Telecommunication Networks”, http://www.oftel.gov.uk/publications/1995_98/competition/pcstn.htm#CONTENTS Duvall, J.B. and Ford, G.S. (2001) “Phoenix Center Policy Paper Number 10:Changing Industry Structure: The Economics of Entry and Price Competition” PHOENIX CENTER POLICY PAPER SERIES, April. Green, W. (2003) “Lecture Notes” C554 Telecommunications for Managers, Dr. Walter Green, Murdoch University. Kelly, T. (1999) “Pricing Domestic Telecommunication Services to Reflect Costs” Dr Tim Kelly, ITU Seminar on Cost-based Terrifying, Delhi, 16-18 February 1999. NERA (2003) “Anticompetitive Bundling Strategies – A Report for the Australian Competition and Consumer Commission” National Economic Research Associates, January. Mallam, P. ( 1995 ) “Telecommunications Deregulation in Australia” http://web.ptc.org/library/ptr/dec95/5.html., December. Yildirim, E. (1997) “Comparison of Telecommunication between the US and Germany”. 6. Appendix 1: Responsibilities of Regulatory Bodies in Australia 1. The Government Regulators The telecommunications industry is subject to two major regulators: the ACA and the ACCC. 1.1 The Australian Communications Authority (ACA) The ACA is a regulator of the Australian communications industry. It was formed on 1 July 1997 as a result of the merging of the Spectrum Management Agency (SMA) and the Australian Telecommunications Authority (AUSTEL). The ACA regulates telecommunications consumer and technical matters, and manages radiocommunications. The ACA regulates customer equipment and cabling connected to networks and facilities. However, the ACA may delegate much of the responsibility for standards-setting, compliance testing, labelling and the issuing of cabling licenses to ACIF. 1.2 The Australian Competition and Consumer Commission (ACCC) The ACCC regulates competition in the telecommunications industry. It took over these responsibilities from AUSTEL on 1 July 1997. Its major functions in relation to the telecommunications industry are: • administration of the new telecommunications access regime; and • regulation of anti-competitive conduct. The ACCC is also responsible for general consumer protection and competition regulation across all industries. For example, it approves access codes developed by the industry and undertakes arbitration where industry is unable to agree. 1.3 Telecommunications Policy The Department of Communications, Information Technology and the Arts (DCIT) provides advice on all regulatory policy aspects of the telecommunications, radiocommunications and postal sectors. The Telecommunications Industry Division also provides advice on legislative and administrative arrangements for Telstra and Australia Post. Policy advice is provided in relation to the Telecommunications Act 1991 and associated legislat...