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Service providers to pay 12 per cent less to access Telstra copper: ACCC

Service providers to pay 12 per cent less to access Telstra copper: ACCC

ACCC issues draft decision on prices in the transition to the NBN

Telco operators are set to pay 12 per cent less to access the Telstra copper network after the Australian Competition and Consumer Commission issued its draft decision on prices to promote competition in the transition to the NBN.

The NBN is replacing Telstra's legacy network as the infrastructure over which Australian receive fixed line voice and broadband communications.

This structural change has signficant implications for how Telstra's fixed line assets are used during the transition and for the issues that the ACCC has dealt with during its inquiry.

The draft decision, covering July 1, 2015 to June 30, 2019, is for a one-ff uniform fall in access prices of 0.7 per cent of the seven access services.

This compares with a one-off price increase of 7.2 per cent covering the same period that Telstra sought in October 2014.

ACCC chairman, Rod Sims, said the draft decision on prices ensured nominal price stability in the wholesale market for telecommunications services and would promote competition in the transition to the NBN.

"Given current inflation however, this uniform price fall means the prices access seekers pay will decline in real timers over the next four years by around 12 per cent," he said.

There are two conceptual underpinnings to this decision, according to Sims.

First, Telstra will no longer bear the costs of declining consumer demand for fixed line services.

Second, access seekers will only pay for the assets needed to supply them, and not for any under utilisation caused by the NBN.

On the one hand, the ACCC is implementing the approach on the treatment of NBN effect of arrangements outlined in the October 22, 2014 position statement.

The cost allocation framework allocates costs to NBN Co for its use of leased assets, while assets that are decommisioned or used less because of the NBN are removed form the cost base for the fixed line services.

The ACCC is also not allowing Telstra to pass on the costs of capital expenditures that are incurred in making ready for the NBN.

Sims said this meant the prices that access seekers paid did not include a component for the migration of customers off the legacy copper network and onto the NBN or NBN Co's use of Telstra assets.

"In addition, the NBN rollout creates a higher degree of uncertainty about future demand and the costs used to estimate the draft prices than is usual for network industries," he said.

"The ACCC is addressing this uncertainty by detailing how we will respond if the NBN rollout deviates from current forecasts."

There are a number of factors that have contributed to the draft price decision in addition to the approach taken on cost allocation and NBN arrangements.

Sims said an important factor was the decline in the cost of capital driven largely by lower interest rates.

"Additional factors contributing to lower prices include further depreciation of the asset base and lower operating costs due to the decline in the use of the network," he said.

The ACCC recognises that Telstra has made considerable efforts to provide the information needed to form a view on whether its forecasts represent the prudent and efficient costs of supplying services over its copper network.

"However, the ACCC does not yet have all the information on costs needed to form a final view on efficient costs and has requested further information from Telstra in this regard," according to a statement.

"The issues of efficient costs is one of three issues that the ACCC will consider further before reaching a final decision.

"Another area is whether to make additional adjustment for the effect of the NBN; the ACCC is considering whether rising unit operating costs due to the loss of economies of scale on the Telstra's network as customers migrate to the NBN should be excluded from the prices that access seekers pay.

"The third area where the ACCC is still considering its position is the verification of some of the cost allocations within the revised approach."

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