ACCC stands firm in capping Telstra

Although Telstra has publicly slammed the ACCC's final recommendations on price control regulations for telecommunications services, other sectors of the industry are more welcoming.

Senator Helen Coonan last week publicly released the ACCC's final recommendations made as a result of its public inquiry that began in June last year.

The ACCC believes that price caps should remain in place for the next three years, even after full privatisation of Telstra.

Recommendations include keeping the current cap of 22 cents on the price of local calls and including dial-up Internet calls to ISPs in this local-call price cap.

The ACCC also recommends that a basket containing line rental, local, domestic and international long distance and fixed-to-mobile calls should decrease in price by four per cent per year in real terms.

In an address at a Service Providers' Association (SPAN) event ACCC commissioner Ed Willett pointed out that services to businesses with more than five lines should be exempt from price controls.

"Price controls were introduced as a safety mechanism in markets where competition is insufficient to ensure that productivity gains were passed on to consumers in the form of lower prices," he said.

"Our assessment is that competition for (consumer residential services) is still patchy and insufficient. On the other hand, competition that supplies these services to businesses is relatively strong. Hence our recommendation to remove the caps in this area."

Willett said during the address that the aim was not to punish Telstra, but to ensure that price caps remain focussed on specific areas of need.

Telstra's Group Managing Director of Regulatory, Corporate and Human Resources, Bill Scales, issued a statement saying that ACCC's methodology in assuming a lack of competition was flawed and that competition amongst providers was "fierce".

"If this report is accepted, not only would it reduce competition, but it would also impact on providers' ability to make appropriate returns to justify investing in new technologies for consumers," he said.

Managing director of iiNet, Michael Malone, is satisfied with the methodology used by the ACCC and the recommendations made in the report.

Malone said he was extremely keen to see the cap of 22 cents retained on dial-up Internet access calls.

"This threat of increased or timed calls for dial-up customers has been around for 10 years and would be a disaster for low income customers who can't afford broadband," he said.

Malone also finds it hard to see how the recommendations would hinder competition.

"These are price caps. Telstra and other carriers are free to compete below those caps," he said.

"There is already significant competition in delivery of phone lines to business users, which account for over 30 per cent of all phone lines in Australia. However, there is very little competition in home telephony to consumers, outside the areas covered by Optus cable and the like."

Malone has joined many others in expressing doubt as to whether the recommendations will be taken up in full by the government.

"The finance minister has been warning the government that tight regulation would adversely impact the sale price of T3. If the findings were implemented in their current form, this could have a $50-$100 million impact on Telstra's future earnings, meaning the government could choose to water them down," he said.

Coonan said in a media statement that the government would need to consider the report very carefully.

"I am aware that there are a range of views on whether the ACCC's recommendations should be accepted in full, particularly given ongoing competitiveness in the telecommunications markets," she said.

Telecommunications analyst Paul Budde said that you could always argue about technicalities in terms of methodology, but that overall, the ACCC recommendations were a positive for the industry.

"It closes a previous loophole in the regulations that allowed Telstra to cross-subsidise its discounts in the business market by increases in residential line rentals," he said.

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