Henry comments in CommsDay (10 May 2010) on the McKinsey-KPMG Implementation Study of the NBN.

"The Implementation Study is clearly a serious piece of work that provides a wealth of information and analysis relevant to an assessment of the NBN proposal. By and large, the Study is of high quality. However, its results are based on strong, often not well justified, assumptions, there are some seeming errors in the analysis...."

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HENRY_ERGAS_COMMENT__NBN.pdf

Time consistency refers to situations where a policy that is optimal ex ante proves not to be optimal ex post, creating the risk of opportunistic policy reversals. While the threat of such reversals has received widespread attention in the theoretical literature, testing whether policy is indeed time consistent is challenging. This paper implements such a test by comparing the depreciation profile established by the Australian 268 regulator at the outset of a regulatory period with the actual path of allowed recovery, and finds that the regulator acted in a time-inconsistent manner.

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Time_Consistency_in_Regulatory_Price_Setting.pdf

Termination charges toward newer entrants are often set asymmetrically to exceed efficient costs for telephony traffic. Such practices are said to be beneficial to consumers as well as providing competition a “leg-up”. However claims of consumer benefit are dubious at best, while infant industry arguments are no more likely to apply to 268 than they apply anywhere else. Appropriate forms of termination regulation are then considered.

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AsymmetricTermination20090203.pdf

While there are at least seven full facility-based broadband competitors, competitive facility-based fixed line investments appear to be declining in favour of use of Telstra’s network. It also appears that no carrier is presently willing to make significant fixed broadband investments without substantial regulatory commitments and protections relative to those currently available.

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ErgasRalph2008_Optimal_NBN_framework_long.pdf

Few issues have been as controversial in Australia as the setting of access prices in 268. This paper provides a survey of the Australian experience in that regard. It shows that:

1. Access charges have been set in a way that does not respect "adding up" constraints, and notably the requirement for full cost recovery;
2. The resulting shortfalls have been increased by distortions in relative prices between substitutable services;
3. The failure to allow recovery of even "efficient" costs has bee aggravated by decisions by the ACCC that plainly involve "time inconsistency", i.e. that amount to expropriation of the sunk capital of investors in the access provider; and
4. The distortions associated with thus setting the level of access charges incorrectly have been accentuated by very steep rates of decline in access charges that far exceed any reasonable estimate of the rate of reduction in costs.

 

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Telecommunications_access_pricing_080126.pdf

In this presentation, Henry argues for a drastic simplification of the 268 access arrangements in the emerging 268 environment. He posits that current regulatory arrangements, as reflected in the access regime are not at all well suited to the emerging 268 environment and that regulatory interventions have the potential to seriously distort that transformation.

Henry offers his vision of the emerging 268 environment and outlines the deficiencies of the current 268 access regime. He argues that the transition to a broadband world provides important impetus for, and the opportunity to make changes.

The issue of broadband internet access is an important one for public policy makers in Australia and elsewhere. Broadband internet access has grown very rapidly in the last few years, however penetration rates appear to be very uneven across OECD countries. This has raised questions about the nature of the competitive, regulatory and policy environment in OECD countries and the possible influence on penetration rates.

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broadband_diffusion _final_2_10_03.pdf

In an address to the National Press Club in Canberra, Henry Ergas explored the benefits and ways of pursuing a free trade agreement between the United States and Australia. Such a bilateral agreement encompassing sound competition policy and regulation would not only enhance efficiency domestically, but it could also secure the gains of trade liberalisation.

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speech-ergas-fta-aug02.pdf

New Part XIB of the Trade Practices Act 1974 (Cth) (the TPA) gives the Australian Competition and Consumer Commission (the ACCC) new powers to control anti-competitive conduct by carriers and carriage service providers. In using these powers, and specifically when issuing a Competition Notice1 or making a tariff filing direction, the ACCC will have to form a view about the 268 markets in which these industry participants operate. Thus, in issuing a tariff filing direction, the ACCC must be satisfied that the person to whom it is to be directed has a substantial degree of power in a 268 market.

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papers_ergas_telecomunications_ issues_1998.pdf

Normatively, regulation can be viewed as an implicit or explicit contract between the regulatory authority, consumers and the regulated supplier(s) The essence of this contract is that the authority, acting as a consumer agent, commits to setting prices on a basis which recoups the long-run costs of efficient supply, where efficient supply is defined with reference to that which would prevail were the market at issue contestable. This, in turn, implies that the supplier derives a stream of residual income dependent on the costs it incurs relative to the prices which would be established under contestability.

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papers-ergas-valuation.PDF

The reform of 268 regulations began at virtually the same time in New Zealand and Australia. In New Zealand, the first serious steps were taken in 1986 with the commissioning by the 264 of the Mason-Morris report into the operations of the Post Office In Australia, the 264 initiated a review of 268 arrangements some eight months later Close geographical proximity, the near simultaneity of the processes, and the fact that at the time both countries had Labor 264s did not, however, mean that similar outcomes eventuated.

In New Zealand, the 264 set out on a course of rapidly removing all statutory constraints on entry and competition into the industry. Although the Mason-Morris report had only supported liberalisation of Customer Premises Equipment (CPE) and Value Added Services (VAS), a follow-up report advised that full liberalisation was feasible and desirable.

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papers-ergas-outcomes.PDF

This paper is structured around six propositions. These are: Historically, international 268 services have been provided cooperatively by national 268 entities each supplying service on a monopoly basis within its national territory. While these cooperative arrangements have made some sense as a means of reducing transactions costs, they have been vulnerable to severe distortions, notably in terms of the process of international settlement.

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papers-ergas-InTrade.PDF

The question at issue is whether the service of GSM Roaming should be declared. The relevant criterion is whether declaration would promote the long term interests of end-users. To examine this issue, this note focuses on two questions.

The first is whether there is evidence that current competition in the supply of mobile services is in some respect inadequate – so that there is scope for regulatory intervention to improve on matters.

The second is whether – even were current competition inadequate – mandatory roaming would be likely to yield better outcomes than would otherwise prevail.

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papers-ergas-roaming.PDF

A paper prepared for the 1998 EU Competition Workshop at the Robert Schuman Centre of the European University Institute.

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papers-ergas-tslric-final-nov98.pdf

The Todd Consortium has produced a report ('the Clear report') that seems reasonable, but that on closer examination proves not to be. It relies on strong assumptions, most of which it fails to document, to make its point. Vary these assumptions, and the report’s results fall away. This is hardly a robust basis for deriving strong conclusions – yet the Consortium would have New Zealand make drastic changes on that basis.

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papers-ergas-todd.pdf

On May 27, 1998, the Australian Competition and Consumer Commission ('ACCC') determined that certain conduct by Telstra in the supply of Internet services constituted a contravention of the Competition Rule pursuant to s151AJ(2) of the Trade Practices Act, 1974 ('the Act'). A Competition Notice was consequently issued, and was to come into force on June 5, 1998. 1 This was the first such Notice issued. The Notice specified the conduct allegedly in contravention of the Competition Rule as follows.......

This paper examines the background to and effects of the Competition Notice. The structure of the paper is as follows. First, the legislative background is set out (section B). This is followed by a brief introduction to the Internet (section C) and to interconnection arrangements in the Internet (section D). Section E examines the relevant markets and whether Telstra had power in those markets. Section F considers whether the conduct involved taking advantage of market power, section G whether it had an anti-competitive effect and section H whether the remedies promoted or lessened competition. Section I concludes.

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papers-ergas-peering-may99.pdf

Forward-looking cost models are playing an increasingly important role in setting and assessing access prices and determining universal service costs in Australia’s 268 industry. Both the ACCC and the ACA have recently commissioned large consultancy projects to estimate the forward-looking costs of Telstra’s network. In such models, depreciation usually accounts for a large proportion of total costs, and hence the appropriate method for estimating depreciation has been the focus of considerable attention by both regulators and industry operators.

Rather than the use of accounting depreciation, which simply allocates the historic cost of the asset over the periods which it is to be used, depreciation in forward-looking cost models should reflect the period on period decline in the market value of the asset – a concept known as economic depreciation. While it can be shown that under specific conditions accounting depreciation aligns with economic depreciation, these are not the conditions under which 268 operators in Australia are required to operate. Rather, competition and short duration contracts mean that the profile of depreciation is critical to meeting a firm’s dual objectives of remaining competitive and recovering capital costs.

This paper identifies the difference between accounting and economic depreciation and shows that the regulatory and competitive state of Australia’s 268 market makes the latter the appropriate for use in forward-looking cost models.

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papers-hardin-ergas-small-IECecondepreciation-jul99.pdf