Competition watchdog to cut Telstra's wholesale prices

The Australian Competition and Consumer Commission (ACCC) is poised to cut Telstra's wholesale pricing across a number of its copper network services by 0.7 percent, despite the company arguing to increase prices by 7.2 percent.

The ACCC has said that the price decrease across seven fixed-line wholesale services should see a decline in real terms for retailers of 12 percent over the next four years, should the draft decision be adopted.

Telstra argued in October last year that the shift of customers from fixed services to mobile, coupled with the transition from the legacy copper network to the National Broadband Network (NBN), would mean the cost for Telstra to offer the service would rise as the company lost the benefit of economies of scale.

"Given these market realities, regulated wholesale fixed-line service prices will need to increase, at least in nominal terms, between now and 2019," Telstra said.

Telstra's retail customers, and competitors such as iiNet, argued that the Telstra agreement with NBN Co to hand over its copper network to NBN Co as the network rolls out should be factored into the agreement, but the ACCC said it would not be practical.

In its draft decision, the ACCC said that it changed the cost allocations for the fixed network so that as the copper network assets are decommissioned or used less due to the NBN, they are removed from the cost base for fixed-line services. The ACCC will also not allow Telstra to pass on the cost of capital expenditures incurred in making the copper network ready for the NBN.

"This means that the prices that access seekers pay do 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," ACCC chair Rod Sims said in a statement.

The ACCC flagged that it has not come to a final decision yet, because it does not have all of the information from Telstra on its cost forecasts. The ACCC is accepting submissions on its decision until the end of April, and will make a final decision in June.

Jane van Beelen, Telstra's Executive Director for Regulatory Affairs said that the company is disappointed in the draft decision, but noted that no final decision has been made yet.

"The starting point for this decision should be the ACCC's own fixed pricing principles that the regulatory asset base is locked in, and we should have the opportunity to recover our actual costs fairly across all users of the copper network," van Beelen said.

"We are still reviewing the document, but it is disappointing the ACCC is proposing to remove infrastructure costs from the asset base as a result of the NBN, which will prevent recovery of costs fairly across all users of our network. NBN Co has not compensated Telstra for these costs.

"The ACCC has acknowledged they still have a lot of work to do to finalise the FAD. We will continue to engage fully with the ACCC to demonstrate our cost forecasts are robust and to achieve an outcome that allocates network costs across both Telstra Wholesale customers and Telstra Retail."

A spokesperson for Telstra's biggest rival, Optus, said that the ACCC's draft decision didn't cut prices enough.

"The draft decision is a good starting point, but we think there's a case for further price reductions. Australia has some of the highest access prices internationally, and one of the world's most dominant and profitable incumbents," the spokesperson said in a statement.

"Lower prices are consistent with macro trends in the Australian market. Telstra is fully compensated for the impacts of the NBN on its legacy revenues, including declining demand, and it is reducing its spend on the legacy network ahead of transition to the NBN."

Should the ACCC accept its current pricing decision, the price will commence from July 1, 2015, until June 30, 2019.