Telstra considering appeal to ACCC price cut

Australia's dominant telco is looking at appealing a decision made by the ACCC last week that would cut its fixed line price for wholesale customers by 9.4 percent.

The competition watchdog's push to make Telstra cut prices for other telcos accessing its copper wire network could affect future investment decisions and eat into profits.

Telstra estimates that the ruling by the Australian Competition and Consumer Commission (ACCC) last Friday will cut AU$80 million from the telco's revenue and earnings.

Chief executive Andy Penn, who on Tuesday addressed his first Telstra annual general meeting since becoming chief executive in May, said the telco was considering an appeal against the ACCC's order for a 10 percent price cut.

Penn said any regulated entity should be concerned by the ACCC's decision, which went against the watchdog's own principles.

Those principles should allow a regulated company investing in infrastructure, such as Telstra, to recover the costs of providing that infrastructure to every body that uses it. Otherwise, investment in important infrastructure was unlikely to be made.

"If we're not able to recover the costs, which is what the principles say, then obviously that has to influence decisions in the future," Penn told reporters after the meeting.

"The short-term implication is that it impacts Telstra's profitability by up to AU$80 million in FY16.

"But it also introduces price instability during an important period to the NBN, so I don't think it could be good for anybody."

Telstra had argued that the migration of services to the NBN meant it had to charge its remaining fixed line customers more to maintain the same level of service. Telstra had 211,000 NBN customers at June 30.

In handing down its decision on Friday, the ACCC said downward pressures more than offset upward pressures.

"Downward pressures largely come from lower expenditures, falling cost of capital, the treatment of the effects of migration to the NBN, and updated information on the NBN rollout. These more than offset upward pressures from a shrinking fixed-line market due to consumers moving away from fixed-line services and to mobile services," ACCC Chairman Rod Sims said.

Sims said customer migration onto the NBN was precisely the reason why it had opted to slash prices.

"Importantly, users of Telstra's network should not pay the higher costs that result from fewer customers as NBN migration occurs. If there is no adjustment for these higher costs, then customers who have not yet been migrated to the NBN will ultimately pay significantly higher prices for copper based services," he said.

"The ACCC has taken this approach because it considers that users of the fixed-line network have not caused the asset redundancy and under-utilisation, and will not be able to use those assets and capacity in the future. It would not be in the long-term interests of end users for costs to be allocated to users of the network who do not cause them, particularly when Telstra has an avenue to recover those costs."

Penn said a separate ACCC ruling on wholesale prices for mobile terminating access services would reduce revenue by AU$350 million but not have a material effect on earnings before interest, tax, depreciation and amortisation.

Earlier in the meeting, the company revealed that it has received approval for its data retention plans.

Speaking at its annual general meeting on Tuesday, Telstra chairman Catherine Livingstone said the company was well on top of the issue and had its implementation underway.

By last night's deadline, Australian telecommunications companies were due to be in accordance with the law to retain customer billing and telecommunication information for two years for warrantless access by a set of approved agencies in one of three ways: by either retaining and encrypting data with a working implementation; having an approved implementation plan that dealt with areas of non-compliance; or the company had been granted an exception.

"We are pleased to say that Telstra is one of the few, if not only, I think, telecommunication providers that has submitted a data retention plan and had it approved by the government," she said.

In a survey released by the Communications Alliance last night, it was found that 84 percent of Australian telcos would not be compliant with the deadline, and 37 percent of respondents revealed that they were "not confident at all" on understanding what data the law requires them to retain and for how long.

"We are organised to do this and we will implement it over 18 months, and of course, we will work with the government following through on their undertaking to reimburse us for the costs incurred," Livingstone said.

"We're very conscious of regulatory costs incurred, and will absolutely recover them as we can."

Telstra made a AU$4.29 billion profit in 2014-15, down AU$260 million or 5.8 percent year on year from last year's AU$4.55 billion. The telco also completed a AU$1 billion share buy-back.

With AAP

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