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Why handing NBN oversight to a new regulator is a recipe for failure

ACCC Chair Rod Sims could soon see some of the regulator’s powers taken away. Alan Porritt/AAP

Both the Harper competition policy review, and the more recent Vertigan NBN market and regulatory review have widespread implications for economic regulation.

The reports are different in scope and their respective analysis of the Australian marketplace, but both share a determination to see the regulatory role of the Australian Competition and Consumer Commission (ACCC) cut back.

Harper review

Despite acknowledging that there are synergies among the functions of competition, consumer protection and economic regulation that can assist the ACCC perform its role, Harper recommends a split.

Under his proposal the access and pricing functions currently exercised by the ACCC, including arbitration functions under the National Access Regime, declarations and access arbitration functions under the telecommunications access regime, and price monitoring functions under the Water Act 2007 would be handed over to a new specialist access regulatory body.

Vertigan panel

The ACCC is currently responsible for assessing and enforcing the terms and conditions of access to services on the NBN and for the Structural Separation Undertaking given by Telstra. It is also responsible for setting wholesale prices and terms and conditions of access for NBN services and investigating claims of anti‐competitive conduct by carriers.

The Vertigan report recommends the establishment of:

“a ‘networks regulator’, which should be a specialised body with its own leadership and staff. This entity’s sole responsibility would be the economic regulation of network industries.”

This recommendation is made despite the report’s authors acknowledging, with one exception, submissions were generally supportive of the ACCC and felt that it should remain the institution to regulate telecommunications competition and consumer policy.

In fact the report notes that “Most submitters either made no suggestions for change or sought marginal improvements”.

Vertigan provides a wholly inadequate rationale for stripping the ACCC of its telecommunications functions. The essence of his finding is that “the earlier rationale for vesting those arrangements in the ACCC – namely, the expected move to an approach primarily reliant on non‐industry‐specific competition policy instruments – is no longer valid”.

He also argues that “the sheer scale of the regulatory tasks that lie ahead and the high costs of regulatory error suggest a need for those tasks to be undertaken by an entity whose leadership is focused on regulatory functions”.

In my opinion, returning to industry-focused regulation for communications would be a disaster. In 1997 the government closed down Austel, an industry regulator tasked with protecting consumers and carriers from unfair competition and practices. At the time industry and policy makers convinced themselves that in a few short years, no special rules would be needed. Now it seems they have convinced themselves that communications is so complex the nation’s competition regulator can’t handle it.

What’s the problem with setting up a new regulator?

Apart from the inconsistency with the current government’s deregulatory and rationalisation thrust, there are some serious flaws in the access regulatory proposal.

The Harper review noted, without dispelling the concern expressed in submissions and consultations, that an industry-specific regulator might be susceptible to “capture” by the regulated industry.

In addition to the risk of industry capture, Harper is opening the door to appointees from state governments with parochial agendas controlling the new economic regulator as they influenced energy regulation for some years.

In circumstances where many billions of dollars of investment are being deployed and some of Australia’s most powerful business interests are looking for a slice of the action, the idea of establishing a new inexperienced and untested regulatory institution is inviting disaster.

Does the ACCC need a new board?

Splitting off the access regulatory function of the ACCC is not the only change the Harper panel has in mind.

Even though it acknowledges that “the ACCC is a well-regarded and effective body,” it proposes to replace the current Commission with “a Board, comprising a number of members akin to the current commissioners, who would work full-time in the operations of the ACCC, and a number of independent non-executive members with business, consumer and academic expertise, who would not be involved in the day-to-day functions of the ACCC”.

Having spent 13 years at the ACCC, and five as a non-executive director of the UK Office of Fair Trading, it is my strong view that non-executive board members simply cannot function with the level of knowledge and engagement required in a law enforcement or regulatory decision-making body.

The role of non-executive Board members is to establish clear organisational goals, challenge the executive in their achievement and secure good governance. So much of the work of a law enforcement and regulatory body demands full-time engagement in fast moving, complex and confidential matters. It is bad thinking to split the ACCC, it would be destructive to abolish the Commission.

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