Macquarie call to curb Telstra with better regulation

Stan Beer
Friday, 17 February 2006 09:53

IT Industry - Strategy

The chief executive of Macquarie Telecom, David Tudehope, has called on the Government to adopt 'better regulation' rather than 'more regulation' in the telecommunications sector to curb Telstra's drive to re-entrench its monopoly.

Mr Tudehope was the keynote speaker at yesterday's Service Providers Association (SPAN) Director's Lunch on the topic of 'Is the telecommunications industry over regulated?'

In a prelude to his speech, Mr. Tudehope said, 'The ultimate test of regulation is if it achieves the desired outcome. That is, effective competition and better outcomes for users. Australia is failing on both counts.'

He warned Telstra's most recent anti-competitive initiatives surrounding Unconditioned Local Loop (ULL) pricing and operational separation would cost the industry and consumers millions and were a step back towards the monopoly of the early nineties.

'There are currently far too many opportunities for Telstra to 'frustrate' competition as a gatekeeper and aggressive litigator. The most recent example is Telstra's decision to go over the head of the ACCC and determine its own pricing structure for competitors to access its copper phone network, or ULL,' said Mr Tudehope.

'Analysts have determined that the move to a $30 flat-rate amounts to an increase of more than 230 per cent for CBD ULL pricing and 36 per cent for metropolitan ULL. Therefore, the $30 ULL push is nothing more than an attempt to undermine competition where its starting to bite: in the CBD and inner metro areas with alternative Customer Access Networks like the Macquarie access network,' continued Mr Tudehope.

Commenting on the wide range of Australian policy and regulation (administrative, self regulation and structural regulation - see full presentation), Mr. Tudehope said, 'The general consensus is that the level of administrative regulation in the industry is too high.'

Mr Tudehope said that reform of the regulations pertaining to industry structure is the biggest issue facing the Government in the next 12 months as it determines the success or failure of new market entrants and the introduction of innovative services for Australians.

'Better outcomes are not a function of having more regulation. Rather we need to get the regulatory framework right so it functions effectively - this in turn will lead to greater investment, better prices and enhance Australia's ability to compete in global markets,' he said.

Mr Tudehope stated that the separation of Telstra's wholesale and retail businesses is one way to mitigate anti-competitive behavior.

'By establishing genuine arm's length trading arrangements, Telstra will be required to deal with all providers equally. This will bring Australia one step closer to a level playing field and ensure choice for end-users,' he said.

'We cannot underestimate Telstra's ability to stifle competition - the company has enormous structural, financial and political clout.'

Mr Tudehope called for a range of reforms including:

- Increase ACCC resources, expertise and funding
 
- 'Ring fencing' or 'arms-length dealing' rules between Telstra Wholesale & Telstra Retail - similar to those adopted in the Energy sector
 
- A 'de-merger' or divestiture power to complement existing ACCC powers on 'mergers & acquisitions' i.e. if a corporation "abuses market power', ACCC has power to order divestiture

- TPA reforms.  Eg. Toughen 'Part XIB anti-competitive provisions' & enable ACCC to 'set' terms & conditions rather than wait for Telstra to submit an 'undertaking'
 
- Change USO 'modus operandi'
 
- Price Caps - exclude competitive areas (ie. 'business services')