Telcos fight over ACCC wholesale pricing

Telcos fight over ACCC wholesale pricing

Summary: The Australian Competition and Consumer Commission's (ACCC) decision to enforce a flat monthly rate for wholesale prices has concerned the major telcos, with Telstra saying that the ACCC has undervalued its copper network asset, while Optus is concerned that Telstra will be paid twice as much as it should be.

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The Australian Competition and Consumer Commission's (ACCC) decision to enforce a flat monthly rate for wholesale prices has concerned the major telcos, with Telstra saying that the ACCC has undervalued its copper network asset, while Optus is concerned that Telstra will be paid twice as much as it should be.

In March, the ACCC mandated that in most areas, Telstra could charge $16 to its competitors for access to the "unconditioned local loop service", or ULLS, with which they can offer broadband services.

The ACCC used what it called a "building block pricing model", or a regulated asset base (RAB) model, which calculates a price based on Telstra's assets and the costs associated with providing the services to its rivals.

The price was set as a benchmark, and the other telcos can negotiate with Telstra for a better deal.

In a submission (PDF) to the discussion paper for fixed-line access pricing, Optus welcomed the shift to a building block model, but said that the $16 flat cost overpriced Telstra's assets by around 50 cents, and would deliver a windfall to Telstra of $1.8 billion.

Optus said that the $16 price would more than cover Telstra's costs.

"The proposed adjustments result in a RAB which is overvalued from the outset ... it denies consumers the opportunity to benefit from lower access prices and does nothing to encourage further ULL roll-out in advance of the NBN," Optus said. "This approach will provide Telstra with both the incentive and the means to 'game the system' and recoup revenue substantially greater than its actual expenditure, leaving its wholesale customers to pay the difference."

The over-pricing, in conjunction with the pending finalisation of the $11 billion deal between NBN Co and Telstra to lease Telstra's ducts and pits, could also mean that Telstra is paid twice for its copper network asset, Optus said.

"The ACCC appears to be minded not to take into account these substantial payments, either in its consideration of the initial RAB or in the context of ongoing regulatory depreciation," Optus said. "There is a real risk that Telstra will be compensated twice for its investment. It is even more concerning that the ACCC has flagged that it may reduce demand forecasts to take account of NBN migration when information becomes available, thus taking into account the impact of the NBN on one side of the ledger, but failing to take it into account on the other side."

Telstra, however, reiterated in its submission (PDF) that the ACCC had undervalued its assets.

It said that the move to a new pricing model should not have resulted in a drop of the value of its network.

"Any substantial change would indicate either a problem with the application of the previous methodology, or a problem with the application of the new methodology, or both, and it would certainly be a matter calling for investigation," Telstra said. "Yet, in the present case, the commission is proposing a substantial and irreversible reduction in the value of Telstra's investment ... without attempting to reconcile or justify the disparity between the old methodology and the new."

It also said that if the NBN deal was to be taken into account in determining wholesale pricing, the ACCC did need to consider the impact that the network would have on the lifespan of its copper network.

"If NBN roll-out was to be taken into account in setting the initial RAB value, it would also need to be taken into account in other areas, such as demand forecasting and determination of asset lives," it said.

A Herbert Greer submission (PDF) on behalf of iiNet, Internode, Adam Internet and Aussie Broadband argued that the ACCC appears to have decided on an appropriate ULL price before actually determining the value of Telstra's assets and costs. The consortium has recommended that the ACCC go back and determine the value before setting a proper price, taking into account whether Telstra has recovered the costs for investing in the network in the first place. Herbert Greer warned the ACCC to ensure that Telstra's maths are carefully examined in this process.

"It appears to our clients that the ACCC may simply have accepted at face value much of the information and data provided by Telstra. Given Telstra's obvious, and understandable, self-interest in achieving as high an access price as possible, it is not appropriate for the ACCC to proceed in this way. Rather, the ACCC must ensure that the information and data provided by Telstra is subject to an appropriate level of scrutiny."

Topics: Telcos, Government, Government AU, Optus, Telstra

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Armed with a degree in Computer Science and a Masters in Journalism, Josh keeps a close eye on the telecommunications industry, the National Broadband Network, and all the goings on in government IT.

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4 comments
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  • Watch the Telstra shares soar!!!

    With the ineptitude of this government, the 'dream' to try and make the NBN work and 'spend the taxpayers money' like there's no tomorrow on a complete 'cluster' project that will very unlikely never work, you gotta try and make money out of it somehow.

    Like the insulation scheme, Digital Set top box scheme and all the rest, only the smart ones will see through the 'garbage' of this govenrment and make a buck from it. Otherwise lose it as a taxpayer, left, right and centre.

    Telstra are more than willing to get rid of the access network and get paid for it well, while the poor taxpayer will be lumped with an never ending 'money consuming' network that not even the rest of the carriers envy. Happy to use, not to own.

    With the change in government, they will beg the Big T to take it back, at a dime, or risk putting the taxpayer in a never ending money pit. Telstra will be happy, at a dime and on the right legals and terms.

    $3.50 to be found in the shares, and more once the Libs get in as the taxpayer capital is wasted, not the Big T. FEED THE BEAST!!!!!!
    Theguy-bbb4a
  • Once again Theguy, you show you aren't anti-NBN you are simply anti-Labor...

    Fair enough...

    But please don't have the audacity as a political stooge/hurting Telstra shareholder, to expect the rest of us to believe your selfish Alan Jones like, uneducated BS relating to comms...

    BTW I agree with the Telstra share analysis and have been saying so for ages... buy Telstra, especially when they were trading at all time lows and since then they have picked up markedly (no I didn't buy I put in my buy price and missed out by 2c, as they didn't drop where I expected... cest la vie..., but I also didn't buy/keep at $5,$7 or $9) but... remembering they are still trading below all 3 tranche prices!

    The only thing that can stop TLS from heading further north imo, is if the meathead element/NWAT minions vote against the NBN... ooh as you will...LOL!
    Rizz-cd230
  • Rizz,

    I am an opportunitist, that calls it as it is. No religion, and no political belief. I work on fact, not belief (I understand others may want to believe in something, but I don't). You have to if you want to get ahead.

    I do dislike, however, bad governance by ANY political party. And I hate wastage.

    So, yes, if we can put aside all these differences, as goverments will govern stupidly, it is only the punters like us who can see through it all, and try and make something from it.

    At the end of the day, if anyone can see through the guff, the capex from the NBN comes from the taxpayer (believe it or not, the goverment runs on taxpayers money), and the longer the NBN goes, the better it will be for Telstra to pick it up at a later date.

    They would have used the NBN machine to build a network they can utlimately own, without having to dive into their pockets. And then pick it up for a dime, on their terms and conditions, and ROI.

    NO OTHER CARRIER wants to own the access network, as it has a high opex running cost, that is fact, and the taxpayer will ultimately not be able to keep it going.

    Up to the punter, if they want to make something from it, or debate endlessly on NBN 'intangbiles' that never eventuate. I prefer to understand 'investment', which is the major part of telco, not just pushing a 'mouse' button.

    Good luck to you, if you want to take a punt. It's a free country, and from where I stand it would be very hard for Telstra to lose, which ever way the coin falls...
    Theguy-bbb4a
  • Ah well the explains it then...

    BTW - how much did you get for Grandma?
    Rizz-cd230