The Australian Competition and Consumer Commission (ACCC) says it will authorise the revised agreements between NBN and Optus for the integration of the Optus HFC (hybrid fibre coaxial) cable network into the NBN. The deal also covers the migration of Optus HFC subscribers to the NBN, and was agreed last December.
Under the Competition and Consumer Act the ACCC is not able to authorise acquisitions, but the parties asked the ACCC to consider the agreement under its informal merger review process.
ACCC chairman Rod Sims said that the deal would not affect competition, and would also have pubic benefits. The two companies signed an initial agreement in July 2012, under Labor’s previous NBN plans, and revised the agreement last year after the Coalition implemented its new ‘multi-technology mix’ strategy.
Under that plan nearly one third of Australia’s homes will be connected to the NBN via the Optus and Telstra HFC networks, originally implemented in the 1990s for pay TV. HFC will play a larger role in the new NBN than it would have under Labor’s plan, which relied to a much greater extent on fibre-to-the-home (FTTH).
Sims said when the initial agreement was signed in 2012 that its decision to approve it was “finely balanced,” but that the ACCC believed that the public benefits, “which are clear and quantifiable, on balance outweigh the likely detriment.”
He said then that the agreement removed a potentially significant fixed line competitor to the NBN in Brisbane, Sydney and Melbourne, but that is obviously much less of a factor three years on. From his July 2012 statement:
“The ACCC accepts that Optus is unlikely to undertake the large investment required to allow Optus to offer significantly faster products on the HFC network than those currently available. The Optus HFC network would, therefore, only provide a close substitute to the NBN for customers seeking broadband services at the lower end of the range of services that the NBN will support.
“Over time, Optus customers who are on the HFC will demand higher speed services and are likely to be migrated by Optus to the NBN. There are a range of views on how quickly Optus customers currently on the HFC will want such higher speeds.
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“While the ACCC did not form a view on the future need for high speed broadband, it did accept that the Optus HFC network would be uneconomic to operate once a critical mass of customers were lost.”
The situation is even clearer now, according to Sims. “The ACCC accepts that in the absence of the revised arrangements, NBN Co and Optus would continue to operate under the terms of their original agreement, as authorised in 2012.
“The ACCC concluded that it would not have exercised its discretion to initiate a revocation process for the existing authorisation, having regard to the need for regulatory certainty and its view that the balance of benefits and detriments identified by the ACCC in 2012 was not likely to have changed, despite policy and technological changes since then.
“This is because Optus would still be unlikely to invest in significant upgrades of its HFC network in order to provide infrastructure based competition beyond the short to medium term,” Sims said.
“This means that Optus would cease to be a network competitor to NBN in any event and so little, if any, additional public detriment is generated by the revised arrangements.”
In other words, the ACCC believes the revised deal may as well proceed, because Optus was not going to do anything with its HFC network anyway and as the NBN grew it would become uneconomic. Sims said the revised arrangements will allowing NBN to access the fibre components of Optus’ HFC network and “avoid inefficient investment in additional distribution fibre on these parts of the multi-technology NBN.
“It will also provide consumers with a greater choice of service providers and access to a greater range of broadband products sooner than they otherwise would have, and facilitate less disruptive customer migration to the NBN.
“The ACCC acknowledges the revised arrangements form part of a broader proposal for NBN to acquire Optus’s HFC network assets, and that utilising existing HFC infrastructure in rolling out the NBN is likely to generate cost savings,” Sims said.
The ACCC is now seeking submissions from NBN and interested parties in relation to its draft determination before making a final decision in by September. Further information about the informal merger review is available from the ACCC’s Mergers Register
Unsurprisingly, NBN CEO Bill Morrow has welcomed the decision. “It is yet another significant step that enables NBN to deliver better broadband to every Australian as soon possible and at the least possible cost. The agreement between NBN and Optus delivers clear benefits to families and businesses. We are pleased to see that the initial view of the ACCC is the same.”
Earlier this year NBN announced plans to introduce into its HFC network the high-speed cable technology, known as Data Over Cable Service Interface Specification (DOCSIS) 3.1, which Morrow said puts NBN on a path to offer Gigabit broadband services.