Vodafone CEO urges regulators to rein in Telstra

The NBN is not enough to level telecom competition in Australia, according to Vodafone Hutchison Australia CEO Bill Morrow. At an American Chamber of Commerce event today in Sydney, he called on government to support policies that scale back Telstra’s “regulatory favour.”

Vodafone is the number-three telco in Australia and has recently suffered large customer losses in part due to network problems. While the company is investing heavily in enhancing its network, it trails Telstra and Optus in rolling out 4G LTE.

Vodafone and other competitors have said before that the NBN will help balance the playing field because it enable many companies to sell technically-equivalent broadband services.

The concept of the NBN is “fabulous because it will bring opportunity for competition,” Morrow said. But the NBN should also be used to enhance mobile competition by lowering the lease-line costs that mobile competitors pay to connect their base stations.

“Australia is off the charts on lease-line costs,” Morrow said. “If we as an industry with the government can look at doing stuff a little bit different, it will bring in more competition.”

Morrow also questioned how Telstra will spend the $11 billion it's getting from the government to transfer its customers to the NBN. That’s “fueling the machine that is creating the gap where we stifle competition,” he said.

Among other pro-competitive policies, Morrow urged an overhaul of the universal service obligation (USO), which subsidises telecom service in high-cost areas. He said that the USO currently sends $880 million of the industry subsidies to Telstra. “This isn’t just cost that they’re getting reimbursed for. It’s cost plus profit.”

Morrow also complained about the rates that telcos charge to connect calls between landline and mobile callers.

That Telstra’s fixed-line profits exceed that of most incumbents around the world shows Australia has a competition problem, Morrow said. Also, Australia’s fixed-line prices are among the highest in the OECD, he said.

Telstra is able to use those large fixed-line profits to invest in its mobile network, giving it an advantage over Optus and Vodafone, Morrow said. It makes business sense for Telstra to operate the way it does, but it’s not in the interest of the Australian public, he said.

Vodafone and Hutchison had to merge in order to maintain economic scale necessary to survive in a Telstra-dominated market, Morrow said. But maintaining three competitors in the current environment “is even a question,” he said. Some have speculated that Vodafone itself could be a takeover target for a foreign company.

“There is nothing personal on the negative side at all toward [Telstra CEO David Thodey] or Telstra,” said Morrow, “but he even declares himself he has a state of supremacy” and his job is to “maintain supremacy.”

“I would do the same thing, and his shareholders expect him to do the same thing, but how do we make sure that they can go off and do what’s right for their shareholders, and we have policy again that allows competition to come in?”

After the event, Telstra fired back at Vodafone, saying competition has driven its investment.

Creating a more competitive landscape won’t correct Vodafone’s problems, which are Vodafone’s responsibility to fix, said Morrow.

VHA “is a company that’s not in a great state,” said Morrow. “We have been suffering somewhat from some decisions in the past,” including a failure to anticipate the level of growth in mobile data usage, he said.

Addressing competition “is really about something that’s bigger than that. It’s about all of us sitting at a table together and doing something fundamentally important as you look at this [mobile] revolution.”

Vodafone is not alone in seeking regulatory changes to enhance competition. Earlier this week, a coalition including Vodafone urged more content regulation to prevent exclusives for Telstra.

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