Telstra outlines problems with ACCC draft proposal
A draft proposal from the industry watchdog to revamp wholesale pricing structures would devalue Telstra’s copper assets by up to $18.6 billion, the telco warned this week.
In its public submission (PDF) this week to the draft report from the Australian Competition and Consumer Commission (ACCC) released in September, Telstra agreed that a new pricing regime was needed to provide a “smooth transition” to the National Broadband Network (NBN). By settling on a final valuation of Telstra’s copper assets, the telco industry would be able to settle on pricing and regulatory certainty for access to its network
“The ACCC’s draft pricing principles, however, do not deliver on these priorities,” Telstra’s submission reads.
Instead, in exposing what it considered to be “a number of significant problems” in the cost modelling and estimates provided in the proposal, the telco disagreed with the ACCC’s valuation of both Telstra’s copper access network and backhaul, detailing how the draft pricing regulations would threaten its ability to recover direct costs.
“Without any justification, the ACCC has proposed shifting from a current-dollar/real valuation to a nominal valuation of Telstra’s asset base, resulting in a $18.6B devaluation of Telstra’s assets,” the submission reads.
Telstra claimed the total valuation of its copper access network (CAN) and inter-exchange backhaul network currently stood at $31.9 billion, while the watchdog proposed the same assets were valued at $13.3 billion, leading to the shortfall.
Inclusive of the ACCC’s estimated $13.3 billion total network value was a $7.5 billion figure for the CAN, derived from the $9 billion non-binding Financial Heads of Agreement it signed with NBN Co earlier in the year. However, Telstra’s disregarded the figure as a failed example of reverse engineering, as it did not take post tax amounts in account.
Telstra indicated it valued the deal with NBN Co to provide approximately $16 billion in value once other aspects, including regulatory certainty and the right to participate in wireless spectrum auctions, are taken into account.
“The FHoA is not – and was never treated as – an asset purchase,” the Telstra submission reads. “The amount agreed under the FHoA is one element of the terms on which Telstra was prepared to ‘settle’ a global and multifaceted deal with NBN Co and the Government.”
The latest disagreement marks one of several in the past decade alone between the two, with estimated values for the CAN floating between $18 billion and $30 billion based on an asset life of 40 years. In 2007, the two agreed to a valuation of $27 billion for its copper access network and $15 billion for the backhaul based on an analysis cost model.
But Telstra this week slammed the watchdog’s cost modelling as problematic and failing to take into account key aspects vital to its valuation including tax and inflation.
The telco also came at odds with the ACCC over the life of its copper assets, which the watchdog “conservatively” estimated to be 30 years. Telstra countered that depreciation could only be applied until its copper broadband customers were migrated over to the NBN, and the copper network subsequently shut down by 2018. In its draft proposal, however, the ACCC would not disclose the remaining life of Telstra’s existing copper assets, and were instead labelled as commercial in confidence.
As part of its 151 page report, the telco also laid out the problems compared with its own proposed fixes in a basic table (shown above).