Telstra loses fight against wholesale price cuts

Court sides with ACCC in stoush over wholesale pricing

Telstra has failed in its attempt to overturn a decision by the Australian Competition and Consumer Commission that cut the prices the company can charge for wholesale services over the copper network.

Justice Foster today dismissed the telco’s application for judicial review of the decision and ordered that it pay the ACCC’s costs.

The dispute, heard in the Federal Court in Sydney, dates back to an October 2015 decision by the ACCC, which slashed the wholesale pricing of a number of Telstra’s regulated fixed-line services.

The ACCC cut the prices Telstra can charge for its unconditional local loop service (ULLS), line sharing service (LSS), wholesale line retail (WLR), local carriage service (LCS), fixed originating access service (FOAS), fixed terminating access service (FTAS) and wholesale ADSL service.

Telstra had told the competition regulator that it should be allowed to raise its wholesale charges for fixed line services by 7.2 per cent.

A key issue in the dispute was the impact that the transition to the National Broadband Network has on Telstra’s costs of providing the wholesale services.

“All of Telstra’s grounds of review address the same essential issue and seek, in different ways, to achieve the same result,” states Justice Foster’s judgement.

“The key issue which all of those grounds address is that part of the ACCC’s decision which removed from the calculation of the allowable revenue under the BBM [the building block model employed by the ACCC in its pricing decision] such of the increased unit costs of supplying the declared services as resulted from NBN-induced under-utilisation or redundancy of [copper network] assets.”

“It was open to the ACCC to excise these particular costs from the calculation of revenue under the BBM and Telstra has failed to show that the ACCC committed any reviewable error in the course which it took.”

Ahead of the ACCC decision Telstra had argued that although it can expect to cut some fixed line costs as NBN uptake accelerates and more people are moved off Telstra’s 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.

However in the ACCC’s view, Telstra had an opportunity to recover its costs through the agreements with NBN that cover the migration to the new network.

The ACCC decided on a one-off uniform fall of 9.4 per cent in access prices for the services.

The ACCC’s decision applies from 1 November 2015 until 30 June 2019.

Telstra argued that the decision did not follow the ACCC’s fixed pricing principles, that allow Telstra to recover from customers of its wholesale arm the costs of providing services to them.

The judgement in the case has been a long time coming: Telstra in November 2015 sought a Federal Court review of the ACCC.

The parties appeared in court in March 2016. A range of Telstra’s rivals successfully applied to join the proceedings against the telco, with first TPG and Optus and then Macquarie Telecom, MyNetFone and Telcoinabox being added as respondents.

The five telcos that joined the proceedings have the opportunity to apply to have Telstra cover their legal costs.

A Telstra spokesperson said the telco was disappointed with the outcome. “We believe without the fixed principles being binding, there is less certainty for businesses like Telstra in planning future investments,” the spokesperson said.

“We will review the court’s decision in more detail before considering any further options we may have.”

“The ACCC’s determinations meant that the remaining users of Telstra’s network shouldn’t pay higher costs due to a shrinking customer base on the copper network as others migrate to the NBN,” ACCC chairperson Rod Sims said in a statement issued after the decision was handed down.

“The ACCC considered that Telstra had an opportunity to be compensated for such costs under its migration arrangements with NBN Co, and is receiving payments for customer disconnections.”

“The court has recognised that ACCC decisions involve evaluating a range of competing factors, and that our role as the regulator is to consider all relevant information to arrive at an outcome that will promote the long-term interests of end-users,” Sims said.

“Today’s decision will help provide some predictability and stability in access prices over the four-year period of the determination while the NBN rollout is completed.”

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