Telstra makes case for wholesale price hike

Australia's largest telco wants to raise wholesale access pricing by 7.2 per cent

Telstra has told the Australian and Competition and Consumer Commission that it should be allowed to raise its wholesale charges for fixed line services by 7.2 per cent.

The telco argues that although it can expect to cut some fixed line costs as National Broadband Network uptake accelerates and increasing numbers of Australians are shunted off the copper network, the decline in costs will not occur at the same rate as the decline in demand, particularly because many of these costs are independent of demand.

"As most of Telstra’s network costs are fixed, it is inevitable that if the number of people who use the network declined the cost per user would rise," the telco argued in a submission to the ACCC inquiry into final access determinations for fixed line services

"The likely impact of the NBN transition on the demand for and costs of operating the fixed line network, as well as the impact on the allocation of these costs among different users of the network, will mean that current regulated fixed line service prices will have to increase – in nominal terms – to provide Telstra with a reasonable opportunity to recover its costs over the regulatory period."

As a result, Telstra should be allowed to raise wholesale prices for the fixed line services used to deliver voice and Internet services by 7.2 per cent across the board.

"Based on the most up-to-date information on the NBN rollout plan and timetable, Telstra expects NBN transition will lead to demand for fixed-line services falling by around 62% over the next regulatory period(between FY2014 and FY2019)," Telstra said.

Rival telco Optus argued in its submission that the payments Telstra receives to migrate users away from the copper network to the NBN should be taken into account when setting fixed line prices.

"Optus notes that a number of the payments Telstra will receive from NBN Co relate to long-term arrangements that enable NBN Co to access and use existing Telstra infrastructure and assets, such as ducts and transmission capacity," the telco argued in its submission.

"Many of those assets are also used to provide retail and wholesale services and are relevant inputs to the ACCC’s building block methodology. In addition, payments for the migration of Telstra customers can be seen either as a return of capital or as compensation for declining services on the legacy copper network.

"It is important for the NBN payments to be taken into account when setting access prices otherwise there is a very real risk that Telstra will be over compensated for the provision of fixed line services."

Optus rejected the argument that the decline in demand for fixed line services over the copper network meant Telstra should be able to hike prices.

"[M]any of the drivers of that decline are within Telstra’s control and it is largely protected from the impact of the decline for fixed line services," Optus argued.

The telco said that the ACCC should err on the side of lower prices.

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"In this transition period, Optus submits that to the extent that the ACCC has discretion, then subject to ensuring that Telstra recoups its efficiently incurred direct costs, it should make decisions that would tend to lower access prices," the telco argued.

"Lower access prices are likely to improve competition in the fixed line market and lead to lower end-user prices in the transition to the NBN. There will be no damage to the incentive to invest as further investment."

Optus also said that the ACCC to should set access pricing for a shorter, three-year period "in order to ensure that prices are more closely tied to the costs incurred by Telstra".

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