Telstra shares have soared after its important win in the battle for regional customers after the competition watchdog ruled the telecommunications giant should not have to share its network infrastructure with its competitors.
The Australian Competition and Consumer Commission on Friday morning released its draft decision proposing to not “declare” wholesale domestic mobile roaming service.
Should Telstra share its regional mobile network?
The ACCC has launched an inquiry into domestic roaming services which has Telstra shareholders up in arms.
A decision to “declare” mobile networks would have forced Telstra, Optus and Vodafone to let other carriers access their entire networks at regulated prices and the ACCC’s ruling has sparked a furious response.
Telstra has argued that it is dedicated to building high-quality mobile networks around the country, but only if regulatory settings remain exactly as they are. If those settings changed it has indicated it could withdraw billions of dollars of investment from regional areas.
ACCC chairman Rod Sims said there was insufficient evidence that declaration would “improve the current state of competition overall”.
“We are extremely conscious of the fact that in regional, rural and remote areas, mobile coverage and choice of service provider are vital issues. However, the effect declaration would have on competition in regional, rural and remote areas is uncertain. While declaration may deliver choice for more consumers, declaration has the potential to make some consumers worse off,” he said.
Mr Sims said there was not enough evidence to suggest that the move to declare the service would lower prices or improve services in regional and rural areas.
Telstra investors cheered the news sending Telstra shares up almost 5.1 per cent to $4.445 in morning trade.
Telstra chief executive Andy Penn has vigorously fought the changes Photo: Josh Robenstone
“This is the right decision for the people, businesses and communities of regional Australia because it ensures the industry still has the incentives to invest,” Telstra chief executive Andrew Penn said.
Mr Penn said if the final decision supported this draft then Telstra would move “immediately” to expand its 4G coverage to reach 99 per cent of the population by the end of the year.
Rod Sims admits Telstra has had “free kicks” Photo: Jessica Hromas
“This draft decision means we are one step closer to being able to get on with this exciting work that will have positive impacts on people who live, work and visit regional areas,” he said.
Vodafone issued a statement saying it strongly disagreed with the decision.
While declaration may deliver choice for more consumers, declaration has the potential to make some consumers worse off.
ACCC’s Rod Sims
“Too many Australians will continue to be held hostage to Telstra, and will have no choice but to pay Telstra’s mobile premium which totals $1.4 billion per year,” Vodafone said.
“The telecommunications divide between the cities and regional areas will only continue to widen, as no other operator will be able to close the coverage gap between Telstra and the rest of the industry.”
In fact the draft decision raises the prospect of overall higher prices “if other service providers raise their retail prices to reflect the cost of roaming access prices, for example”.
Vodafone said the evidence put forward in favour of roaming was compelling.
“It is disappointing for Australian consumers that a scare campaign with no facts or substance has succeeded,” it said.
Mr Sims said the ACCC had examined the incentives for mobile network operators to upgrade their networks or invest in expanding coverage.
“We heard from many regional groups concerned about coverage. We consider there is evidence that declaration could damage some incentives for operators to invest such that overall coverage is not likely to improve with declaration,” Mr Sims said.
“Many regional consumers do not have a choice of provider either because they only have one network offering coverage in their region or because they need continuous coverage.
“While we do not think that mandated roaming is the answer to these problems in regional and rural areas, we are seeking comment on other regulatory and policy measures that could improve coverage and competitive outcomes.”
Mr Sims said he would look to make a final decision by the middle of the year.
In late 2016 Telstra told the ACCC the only reason it builds uneconomical towers in regional towns is so it can boast it has the biggest network, which attracts higher paying country and city customers.
Goldman Sachs telecommunications analyst Kane Hannan has estimated that losing the case could cost Telstra about $550 million in earnings in a single financial year.
He calculates mobile communications is the single biggest product for Telstra and will contribute about 45 per cent of earnings, or $4.2 billion, in 2017-18. Telstra charges all mobile customers about 15 per cent more than its competitors because of its network size.
Losing the network advantage could cost Telstra about 30 per cent of its business in regional Australia, about 2.3 million subscribers nationally, and would force Telstra to reduce prices to match its competitors, Mr Kane argued in his note.