Telstra and TPG Telecom are going back to the drawing board after the Australian Competition Tribunal affirmed the ACCC’s rejection of a $1.8 billion network sharing agreement that would, it determined, “weaken the competitive constraint on Telstra”.
First announced in February last year, the ten-year Multi-Operator Core Network (MOCN) agreement would have seen TPG decommission 169 mobile sites in regional and outer urban areas to Telstra, then use around 3,700 Telstra mobile network sites in a move that would increase TPG’s overall coverage while giving Telstra access to more 4G and 5G radiofrequency spectrum in regional areas.
The proposal had been vociferously opposed by Optus, which argued that the deal would disincentivise it from investing in its own regional network – and the tribunal agreed, noting that the proposed deal was “likely to have a material effect on [Telstra’s] competitive position vis a vis Optus, and would undermine Optus’s incentives to invest in a 5G network in the 80%+ population coverage area.”
The proposed network sharing arrangements would “provide Telstra with substantial commercial and competitive benefits and would further increase Telstra’s position of market strength” at retail and wholesale levels, the tribunal concluded in its first ever merger authorisation under new rules that came into effect in 2017.
An even stronger market position would “reduce the pressure” on Telstra to continue upgrading its network, the tribunal ruled, while enabling the telecommunications giant to raise prices and increase margins.
“Over time, the network quality gap between Telstra’s network and Optus’s network would be likely to increase,” the ruling notes.
“As a consequence, the competitive constraint that Optus currently imposes on Telstra would be likely to weaken, which would enable Telstra to maintain higher prices and margins than would otherwise be the case.”
Optus welcomed the tribunal’s ruling, with “delighted” CEO Kelly Bayer Rosmarin saying that it “reinforces the importance of infrastructure-based competition and investment in our communications sector.”
“This is a good outcome for our regional communities,” she said, “as it will mean they will continue to benefit from competition… through our ongoing investment program and focus on innovation.”
Regional areas need mobile options
The reasoning behind the tribunal’s ruling echoes the ACCC’s December decision to block the network sharing arrangements, in which ACCC commissioner Liza Carver flagged the “long-term consequences” from the deal and warned that it would “significantly weaken” the competitive process by which Optus and Telstra shadow each other’s mobile infrastructure.
“Any reduction in competition will have very wide-ranging impacts on customers,” she concluded at the time.
Disappointed Telstra CEO Vicki Brady said the company would work with TPG to “consider” the Tribunal’s decision, arguing that the companies “tried to take an innovative approach to improve experiences for our customers and to answer calls… to provide better mobile connectivity, more coverage and more choice for our customers.”
“The agreement with TPG would deliver these benefits almost immediately and for the long term,” she said while calling for a “rethink of policy on spectrum access” in light of mobile demand that is currently growing at around 30 per cent per year even as “valuable spectrum in regional Australia [goes] unused.”
“As a country we need to be smarter about how we use our spectrum assets,” she said. “At the moment we’re limited in the amount of spectrum that we can buy at auction and, as today’s result shows, limited in the type of commercial arrangements we can put in place to improve services for our customers.”
The Tribunal’s ruling comes as the Telecommunications Industry Ombudsman (TIO) released a new report that warned “the current rules in the telecommunications sector are no longer fit for purpose” and calling for improved regulation to assist consumers seeking help, reduce unexpected debt and financial hardship, and introduce a telco registration scheme with minimum entry requirements.
“Until this changes and direct regulation takes its place,” the agency said, “some telcos will continue to fail to meet the needs and expectations of customers.”
