The Australian Competition and Consumer Commission’s (ACCC) attempt to overhaul the current fixed-line wholesale pricing regime has been met with a frosty reception from major telcos.
In April, the consumer watchdog proposed to introduce a final access determination (FAD) to dictate terms and conditions of wholesale fixed-line services access upfront after it was granted new powers. A discussion paper initiated a public enquiry on this issue.
The plan was to ameliorate the wholesale service dominance of Telstra by establishing a new pricing model for third-party access telcos. It would be based on the value of Telstra backhaul assets determined by the watchdog.
According to the draft price table, Telstra would have charged access seekers a flat rate of $16 per month to use its exchanges for voice and ADSL2+ services – also called an unconditional local loop service (ULLS) - across most of Australia. The change would see third-parties pay more for metropolitan areas but less for regional locations.
While the prices would increase slightly in July, they were to be set for the next five years, which would boost industry stability and ease the transition of wholesale services to the National Broadband Network (NBN).
While a number of telcos lauded ACCC’s ambition to set a uniformed wholesale pricing structure, the FAD proposal has been picked to pieces.
The ACCC wanted to implement a new pricing system by replacing the old costing methodology with a building block model (BBM).
To establish a BBM, the watchdog had to set a regulated asset base (RAB) for Telstra’s fixed-line network. The initial RAB value, currently at $15.9 billion, would then be locked-in and ‘rolled forward’.
Optus was happy for the ACCC to dump the existing “archaic” and “complex” rate table and replacing it with the BBM model but had complaints about the RAB.
Australia’s second-largest telco argued the watchdog inflated the value of Telstra’s assets by more than $1.8 billion above its unrecovered actual costs to achieve the $16 ULLS price.
“By valuing Telstra’s assets higher than the actual cost, the ACCC is proposing to gift Telstra a substantial windfall gain,” Optus said in its public submission on the issue. “Not only is this over-recovery inconsistent with the criteria in the Competition and Consumer Act, but it also defeats the purpose of the fundamental pricing reform the ACCC is undertaking.”
The telco claimed the inflated RAB value means consumers would not see savings from lower wholesale access prices and “does nothing to encourage further ULL roll-out in advance of the NBN.”
“This results in substantial over-recovery of costs and means that ULLS access seekers – and their end user customers – will pay far more than their ‘fair share’ of Telstra’s network costs,” Optus said. “The extent of the over-recovery due to this error alone is in the order of $135 million over the proposed regulatory period or $1.78 per month for each end user.”
AAPT shared the same concerns as Optus relating to the value of Telstra assets and noted this “does not appear to have factored in the significant payments pending from NBN Co to Telstra for access to its ducts and pits.”
Meanwhile, Telstra was not pleased by the valuation of its assets at $15.9 billion since the initial RAB value in 2009 was $17.75 billion.
“[Introduction of a BBM] ought not to have been an opportunity to fundamentally revalue Telstra’s investments in its fixed-line network and to implement a model that does not allow it to recover the appropriately allocated anticipated future costs of providing fixed-line services,” Telstra said in its submission to the ACCC.
Another point telcos were critical about was the five-year fixed pricing period.
“The potential benefit of achieving certainty is outweighed by the potential detriments of locking in mistakes and/or being unable to adequately respond to changing circumstances,” the ISPs said in their submission. “… A shorter regulatory period of no more than three years would be appropriate.”
Other concerns raised include the continuation of geographic exemptions which prevent access seekers from tapping into a number of Telstra exchanges.