On 2 October 2014, the Vertigan Panel (Panel) released the final document in its suite of reports concerning the National Broadband Network (NBN). This final report, entitled “Market and Regulatory Report” (Report), considers the most appropriate overall structure and regulatory framework for Australia’s future including the role of infrastructure based competition and NBN Co’s role in that market.
The Report contained 7 principal conclusions and 19 recommendations that are summarised in detail below. In our view, the key recommendations coming out of the report include:
The Government has released an initial response to the Vertigan report. Its main points are:
Principal conclusions and recommendations
In light of these principal conclusions, the Panel made 19 recommendations in the following key
Each of the recommendations is explored in more detail below.
Future market structure
Recommendation 1: Infrastructure competition be the guiding policy for the delivery of wholesale broadband services. This policy be implemented expeditiously to the maximum extent practicable.
Recommendation 2: The basis for a competitive wholesale broadband market structure be created through the disaggregation of NBN Co. This be done through:
Recommendation 3: Part 7 of the Telecommunications Act 1997 and associated provisions of the Competition and Consumer Act 2010 be repealed.
Recommendation 4: Part 8 of the Telecommunications Act 1997 be amended to:
Broadband service provision
Recommendation 5: NBN Co’s ongoing service delivery obligations be enshrined in legislation. New legislative provisions provide that:
Recommendation 6: Nothing should prevent a developer from requesting any provider (whether it be NBN Co or some other provider) to supply infrastructure in, and to service, their estate. The Government should create a fair and effective market for this work by implementing the following arrangements:
Recommendation 7: Transitional measures be used to assist with implementation of the recommended new development arrangements so it is least disruptive to service provision objectives. As part of these measures, the Government should:
Recommendation 8: A policy of price capping for NBN‐type services be adopted, under which prices continue to be affordable but not necessarily uniform nationally. This should be accompanied by a gradual move towards cost‐based wholesale pricing, with directly targeted subsidies used to address any concerns regarding user affordability that may result from this change.
Recommendation 9: If the Government accepts the Panel’s recommendations to divest NBN Co of its fixed wireless and satellite operations, the setting of caps on the prices that can be charged for services supplied by those networks should be part of the divestment program.
Recommendation 10: Division 16 of Part XIB of the Competition and Consumer Act 2010, which provides authorisations for NBN Co to conduct activities reasonably necessary to achieve uniform national wholesale pricing that may otherwise be found to be anti‐competitive, be repealed. The repeal date should be delayed to provide NBN Co with an opportunity to apply for any authorisations it may require under Part IV of the Competition and Consumer Act 2010.
Recommendation 11: The implications of different future structural scenarios for NBN Co and changed market‐entry conditions for the funding of non‐commercial services be addressed in the following way:
Regulation of NBN Co’s products, pricing and expenditure
Recommendation 12: The ACCC issue guidelines setting out its general approach in dealing with issues relating to new product development by NBN Co.
Recommendation 13: To ensure national standards for broadband infrastructure and services are appropriate, an independent body, such as the Productivity Commission, review them at least once every six to 10 years, with the results used by the Government to confirm or adjust the national broadband standard. This review requirement be set out in legislation.
Recommendation 14: If, following an independent review, the Government decides to raise the national broadband service standard, it should initiate a process with NBN Co and other relevant operators to establish the most cost‐effective way of implementing that new standard.
Recommendation 15: NBN Co should generally continue to be permitted to supply only declared services within the meaning of Part XIC of the Competition and Consumer Act 2010. However, to provide flexibility to deal with situations such as pilots and trials, the integration of new networks, the provision of services in contestable markets, and greater competition following full disaggregation, Part XIC should be amended to allow the ACCC to determine that specified NBN Co services are not to be treated as declared services in circumstances where the ACCC is satisfied this is in the long‐term interests of end‐users.
Recommendation 16: Were the Government to decide to retain NBN Co as an integrated entity, competitive neutrality requirements in respect of decisions about entry and expansion be established in legislation. Should NBN Co be disaggregated, the Government give NBN Co clearer instructions through the Shareholder Ministers’ Statement of Expectations about how it is to behave in situations where market failure is not usually an issue. This includes:
Recommendation 17: Retail price controls not be applied to Telstra services on the NBN unless there is clear evidence of consumer detriment due to Telstra facing inadequate actual and potential competition in a particular market segment. The Minister’s power to make price control determinations be retained in a form that allows it to be applied to services provided over the NBN, for use only as a reserve power and subject to that power being confined to areas of clear market failure.
Privatisation and governance of NBN Co
Recommendation 18: Arrangements relating to the privatisation of NBN Co as a company are not an issue that requires immediate consideration; they be revisited once the NBN is further established.
Administration of economic regulation of the telecommunications industry
Recommendation 19: The current telecommunications‐specific functions of the ACCC, with the exception of those related to Part XIB of the Competition and Consumer Act 2010, should be transferred to a ‘networks regulator’. The current Competition Policy Review, which is to report by December 2014, should examine the establishment of such a regulator which would have responsibility access regulation for all infrastructure industries.