ACCC lowers backhaul pricing by up to 78 percent

The telco industry regulator has announced that it will substantially decrease the pricing for domestic transmission capacity services.

The Australian Competition and Consumer Commission (ACCC) has released its final pricing decision for domestic transmission capacity services (DTCS), saying it will lower backhaul pricing "significantly".

Under the Public Inquiry to make a Final Access Determination for the Domestic Transmission Capacity Service Final Report [PDF], short-distance, low-capacity 2Mbps services will have an average price around 13 percent lower in metropolitan areas and 22 percent lower in regional areas, while long-distance, high-capacity 100Mbps and above services will drop by an average of 76 percent in metro areas and 78 percent in regional areas.

"We have seen a downward trend in commercial transmission prices in recent years, and this trend is reflected in lower DTCS pricing, particularly on high-capacity, regional routes," ACCC chairman Rod Sims said.

"Because transmission is an essential input for many services, we consider that lower prices will promote competition in downstream markets and put more downward pressure upon wholesale transmission prices, particularly in regional areas. We expect that these lower prices will be passed on to end users in the form of lower prices and new, innovative services."

The actual pricing for each service will be determined on a case-by-case basis, taking into account capacity, distance, geography, competition in that area, and type of service. For Tasmanian services, the ACCC's decision also provides an "uplift factor" to account for the higher cost and risk inherent in relying on undersea cables -- as demonstrated by the current Basslink cable outage.

"While the higher uplift factor provides pricing similar to current commercial pricing at the lower capacity levels, there are significant reductions in regulated prices for higher-capacity services," Sims said.

Lowering the prices will "promote competition and allocative efficiency for downstream markets" that rely on DTCS, the ACCC said. These include mobile backhaul; data and IP services; and corporate, government, and carrier transmission.

"The ACCC considers that the markets relating to DTCS include wholesale transmission and the range of retail services delivered over optical fibre that use transmission services," the report says.

"This includes the national long distance, international call, data and IP-related markets. Wholesale markets which have the DTCS as an essential input also include the mobile backhaul, corporate, and government and carrier transmission markets."

Optus welcomed the decision, saying it reflected industry submissions on the draft decision last year.

"We note that the ACCC has taken account of industry concerns with its draft decision, and substantial improvements have been made to its modelling of DTCS prices," an Optus spokesperson said.

"The final prices better reflect trends for competitively supplied transmission services."

Vodafone Australia -- which last year reached a deal with TPG to replace backhaul arrangements with Optus -- also hailed the DTCS decision, saying it would improve competition in more remote areas.

"High transmission prices have been one of the biggest barriers to competitive telecommunications in regional Australia," said Vodafone chief strategy officer Dan Lloyd.

"Today's final decision by the ACCC confirms what Vodafone has been saying for many years: That transmission prices have been far too high for far too long, and are preventing competition in regional and rural areas.

"This decision is a major win for regional customers, as it will open the door to increased competition and greater choice of provider, leading to fairer prices. For Vodafone, it means we will be able to bid on sites under the Mobile Black Spot Programme which were previously unattainable."

Telstra, on the other hand, argued that the market is already diverse and competitive, and any further pricing constraints could put "innovation at risk".

"Australia's data transmission market is already intensely dynamic and competitive. Wholesale customers are benefiting from both competitive prices and ongoing investment and innovation in the market," a Telstra spokesperson said.

"We are reviewing the details of the decision. However, if the price reductions mandated by this FAD go further than those we have seen on competitive routes, the investment and innovation that is currently delivering benefits for customers may be put at risk."

Telstra is currently embroiled in a Federal Court case against the ACCC over its decision last year to slash the prices Telstra can charge wholesale customers for the use of its legacy copper network during the transition to the National Broadband Network's (NBN) by 9.4 percent.

While Telstra's submission to the DTCS draft decision last year had also suggested that the ACCC make backhaul for all NBN points of interconnect (POI) exempt, the ACCC found that this was another issue entirely and "outside the scope" of this decision.

"NBN POI pricing data was examined during the regression modelling and found to have no clear relationship with price," the report says.

"As such, it was not given any further consideration during the modelling. The ACCC notes Telstra's submission regarding NBN POIs, but considers that submissions regarding declaration of additional ESAs [exchange service areas] are outside the scope of the FAD decision.

"The ACCC will, however, continue to monitor the development of competition on NBN POI routes."

The ACCC had decided two years ago that it would continue regulating DTCS for another five years, saying the backhaul networks used for carrying traffic for mobile and fixed-line networks need to be regulated in regions where there is not enough competition.

The new pricing comes into effect as of Thursday, April 21, and will remain in place until December 31, 2019.