Telstra taking ACCC to court over wholesale pricing cut

Telstra will take the consumer watchdog to court over a decision to cut wholesale pricing for fixed-line services by almost 10 percent, which the telco says will prevent it from recovering its costs.

Telstra has announced that it will appeal a decision made last month by the Australian Competition and Consumer Commission (ACCC) to cut the prices that Telstra can charge its wholesale customers for use of its legacy copper network during the transition to the National Broadband Network (NBN) by 9.4 percent, taking the matter to the Australian Federal Court.

The price cut would inhibit Telstra from being able to recover its costs from providing wholesale services, according to the telco.

"Telstra has decided to file an appeal with the Federal Court seeking review of the ACCC's recent fixed-line pricing decision," a Telstra spokesperson told ZDNet in a statement.

"In our view, the decision does not follow the ACCC's own fixed pricing principles that require Telstra to be given the opportunity to recover from wholesale customers the costs of providing services to them.

"We believe the court is the appropriate place for us to get clarity on this matter."

Telstra CEO Andrew Penn last week flagged during Telstra's Investor Day presentation [PDF] that the wholesale pricing cut would affect Telstra's FY16 revenues by up to AU$80 million from November 1, when it came into effect, until June 30.

"We are disappointed in this decision, given that it does not follow the ACCC's own fixed price principles we have relied on in making key decisions for shareholders in relation to the NBN. We are therefore considering our options for appeal," Penn said.

While the ACCC had originally planned to reduce prices across seven of its fixed-line wholesale services by just 0.7 percent, its revised draft decision on the price cut, announced in June, said the amount that Telstra charges retailers for use of its broadband internet services would be cut by 9.6 percent from October 2015.

The competition watchdog adjusted this to 9.4 percent in its final decision in October.

"The ACCC has dealt with a number of complex issues during this inquiry, including the unique circumstances of the transition from Telstra's copper network to the NBN. Our final decision on prices is the result of a number of considerations, with downward pressures more than offsetting upward pressures," ACCC Chairman Rod Sims said.

"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."

Telstra had spoken out against the draft decision in July, saying the price slash could impact the migration of customers onto the NBN, as retailers would "have a profit motive to keep their customers on the higher-margin copper network for as long as possible".

The telco added that the consumer watchdog had ignored the NBN and its resultant rise in maintenance and investment costs for Telstra.

"As consumers and businesses progressively shift to the NBN, our unit costs on the legacy network will inevitably -- but modestly -- increase. Many of our costs are fixed, so as people leave the network, the cost of maintaining it for each of the remaining customers will rise. Additionally, we want to keep investing in the network for broadband customers who don't yet have access to the NBN," Telstra said in a blog post.

"Having accepted our cost and demand forecast, the ACCC's approach then effectively pretends that the NBN is not happening, thereby assuming higher demand for Telstra's services and accordingly lower average costs."

Telstra also accused the ACCC of misrepresenting its AU$11 billion deal with the Australian government, saying the amount detailed in the revised agreement relates to "a loss of future revenue after services are disconnected from the copper network, not the cost of maintaining our network for those customers who remain on it as the NBN is rolled out".

Rival telcos Optus and TPG argued, however, that the pricing still allows for the "significant" over-recovery of costs under the Definitive Agreements with NBN.

"It is incorrect to claim that the decision limits Telstra's ability to recover costs. The modelling allows Telstra to recover all costs across all users. Consistent with the fixed principles, only costs caused by the provision of regulated services are to be recovered from access seekers. Other costs are recovered by Telstra across its full suite of non-regulated wholesale products and retail services," Optus said in July.

"In fact, the current approach is more likely to achieve cost over-recovery because of the rollover of existing prices."

The Competitive Carriers' Coalition (CCC) last month welcomed the final decision by the ACCC, saying the price cut was both "necessary and sensible", pointing out that retaining what is close to being the highest fixed-line pricing in the world would impact the overall Australian economy in a negative way.

"The 9.4 percent reduction represents an overdue change; nevertheless, the commission deserves praise for holding the line in the face of unprecedented pressure to allow Telstra to continue to enjoy monopoly rents," CCC chairman Matt Healy said.

"Anything less would lack credibility, and would have had terrible, economy-wide consequences, as the Australian economy struggles to move from the mining boom to a digital economy."