Steeper price cut for Telstra's wholesale broadband services on the cards

ACCC eyes 9.6 per cent cut to the prices of the Telstra wholesale services regulated by the competition watchdog

The Australian Competition and Consumer Commission (ACCC) is eyeing a steeper cut than previously mooted to the pricing of the Telstra wholesale services regulated by the competition watchdog.

Earlier this year ACCC released a draft decision that would have seen a uniform 0.7 per cent drop in the pricing of the seven access services regulated by the organisation – ULLS, LSS, WLR, LCS, FOAS and FTAS and wholesale ADSL [see box below].

The effect would have been a decline in real terms over four years of around 12 per cent.

Telstra has previously argued that it should be allowed to raise its wholesale charges for fixed line services by 7.2 per cent.

Today the ACCC released a further draft decision which would see an even steeper cut in wholesale prices of 9.6 per cent for the period 1 October 2015 to 30 June 2019.

"A number of factors have contributed to the change in the estimated price movement between the March draft decision and this further draft decision," the ACCC's further draft decision (PDF) states.

"The most significant factors are: the draft decision to make adjustments to ensure that access seekers do not incur higher charges as a result of the loss of economies of scale due to the NBN; revisions to Telstra’s forecast operating expenditure; and updates to reflect changes to the CPI forecast and the risk free rate used in the estimation of the weighted average cost of capital ... in light of most recent information."

"Users of Telstra's network should not pay the higher costs that result from fewer customers as NBN migration occurs," the chairperson of the ACCC, Rod Sims, said in a statement.

"If there is no adjustment for these higher costs then customers who have not been migrated to the NBN will pay significantly higher prices for copper based services. Eventually these prices would reach absurd levels for the unlucky last copper customers."

"Our draft decision is that assets that become redundant as a result of migration will be removed from the asset base," Sims said.

"Also, users of the copper network will not pay the higher prices that result from the loss of scale efficiencies as the number of services remaining on the copper network falls.

"This draft decision reflects the fact that Telstra had the opportunity in its negotiations with NBN to ensure that it received consideration for the effects of service migration, including the costs associated with the loss of economies of scale and asset redundancy."

"The ACCC considers that the costs associated with this loss of economies of scale [as end users move away from the copper network] are caused by NBN migration and not by users of the fixed line network," the further draft decision states.

"The ACCC considers that such costs should not be reflected in regulated revenues or charges. The ACCC considers that Telstra has been provided with an opportunity to ensure that it would receive consideration through the [Definitive Agreements between Telstra and NBN] for the impact of the NBN on its fixed line assets."

Last week the ACCC announced it had signed off on Telstra’s revised NBN migration plan, clearing another hurdle for the rollout of the 'multi-technology mix’ National Broadband Network.

Telstra criticised the ACCC's draft decision.

Read more: Telstra launches its telemedicine service

The Competitive Carriers' Coalition, which brings together a number of rival telcos, backed the ACCC's draft price reduction.

"Telstra's argument that it needed to be compensated by competitors and consumers for the equipment it turns off as it is replaced by the NBN was always an extraordinary claim," the organisation's chairperson, Matt Healy, said.

"Telstra negotiated a handsome payout from NBN for migrating customers off this equipment – billions of dollars in tax payer money.

"Asking the ACCC to allow it to increase charges to people still using the old copper network to compensate Telstra again for the loss of scale caused by migration to the NBN was the height of cheek."

The prices that Australians pay for fixed line services are the highest or near highest in the OECD, Healy said.

Declared service: A service that the ACCC regulates under Part XIC of the Competition and Consumer Act 2010. Once declared, a service provider must supply the service to other parties in accordance with the standard access obligations and the terms and conditions set in the final access determination.

FOAS: Fixed Originating Access Service. The declared service replacing the previously declared PSTN (Public Switched Telephone Network) OA service. Enables a telephone call to be connected from the caller to a point of interconnection with another network.

FTAS Fixed Terminating Access Service. The declared service replacing the previously declared PSTN TA service. Enables a telephone call to be carried from the point of interconnection to the party being called on another network.

LCS: The declared Local Carriage Service. Enables access seekers to resell local calls to end-users without having to invest in their own network and switching equipment. The LCS is purchased in conjunction with the WLR service.

LSS: The declared Line Sharing Service. Enables access to share the use of the copper line connecting consumers to the telephone exchange, allowing them to provide fixed internet services using their own equipment.

ULLS: The declared Unconditioned Local Loop Service. Allows access seekers to use the copper line connecting end-users to the local telephone exchange, allowing them provide both fixed internet (broadband) and voice services using their own DSLAMs and other exchange equipment.

Wholesale ADSL: The declared Wholesale ADSL service. Allows access seekers to purchase a Wholesale ADSL product from Telstra and resell internet services to end-users.

WLR: The declared Wholesale Line Rental service. For a monthly ‘per-user’ charge, it allows access seekers to purchase a line rental service from Telstra, which includes access to the copper line and associated services (including a dial tone and telephone number) supplied using Telstra’s equipment.

Source: ACCC

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