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Optus, TPG add voices to criticism of 'dangerous' government fixed-line pricing submission

Two more Australian telcos have protested the government's involvement in an independent pricing review, stating a price slash would not impact customer migration to the NBN and Telstra's costs have been misconstrued.
Written by Corinne Reichert, Contributor

Australian telecommunications companies Optus and TPG have thrown their weight behind a declaration made last week by the Competitive Carriers' Coalition (CCC) that a submission to the Australian Competition and Consumer Commission (ACCC) on its draft decision to cut the prices Telstra can charge its wholesale customers for use of its legacy copper network by the Department of Communications is inappropriate and "dangerous".

The two new submissions, published on Friday afternoon, voice concerns that the federal government should not have made a submission to an independent review, that the government's submission misconstrues Telstra's costs, and that it is incorrect in claiming that lower copper prices could prevent or slow customer migration to the National Broadband Network (NBN).

TPG, which on Monday got one step closer to becoming Australia's second-largest telco after iiNet shareholders voted overwhelmingly in favour of a TPG takeover deal, said it is "concerned" about the Department of Communications' submission. It countered that contrary to the arguments put forward by Telstra and the government, higher copper prices have not historically prevented customer migration to the NBN, and are unlikely to have this effect in the future.

"The migration event is an important one, and all carriage service providers are competing heavily to make sure that they get their share of the NBN migrations," TPG said in its submission (PDF).

"Even today, the costs of supplying an NBN service are higher than the costs of supplying a copper-based service, but this is not stopping all carriage service providers from trying to win customers to their NBN services."

Optus agreed in its submission (PDF), saying, "At the core of the department's submission is the request that access prices be kept high now so that consumers don't face any price changes when they migrate to the NBN. This proposition is inconsistent with consumer interests and the matters that the ACCC has to take into account in setting access prices."

In regards to Telstra's costs, TPG argued that the pricing still allows for the "significant" over-recovery of costs under the Definitive Agreements.

Optus claimed that the government department "appears to misunderstand" the basis upon which the ACCC made its draft decision into fixed-line pricing.

"The proposed access prices are largely based on Telstra's data and cost allocation factors. Costs in the model reflect the relevant use of Telstra's assets by services which caused those costs to arise. Changes to Telstra's cost of capital are the main driver of the price decline; and specifically lower government bond rates. This has little to do with ACCC discretion and nothing to do with NBN," Optus said.

"In addition, 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.

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

While the ACCC had originally planned to reduce prices across seven of the fixed-line wholesale services by 0.7 percent, its revised price cut, announced late last month, would see the amount that Telstra charges retailers for use of its broadband internet services cut by 9.6 percent from October to ensure that customers stuck on Telstra's legacy copper network during the transition would not be forced to pay higher prices while waiting for an NBN connection.

"If there is no adjustment for these higher costs, then customers who have not been migrated to the NBN will pay significantly higher prices for copper-based services. Eventually, these prices would reach absurd levels for the unlucky last copper customers," ACCC chairman Rod Sims said in June.

In its submission (PDF) to the ACCC, the Department of Communications mirrored Telstra's perspective, saying that the draft decision should be amended to allow Telstra to recover its costs, and to prevent cost discrepancies from dissuading customers from migrating to the NBN.

"The ACCC's treatment of redundant assets and adjustments to cost allocation to deal with asset under-utilisation and loss of economies of scale appear to prevent Telstra recovering relevant costs, and this is inconsistent with fixed principles," the communications department put forward in its submission.

"The department is concerned that the proposed price decrease for fixed-line services will discourage migration throughout the migration window, and could lead to a significant number of customers remaining on the old network in the lead-up to the disconnection date."

Telstra also spoke out against the ACCC's draft decision in a blog post and its submission (PDF) to the ACCC, warning that the price slash could adversely 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".

"This would make migration to the NBN even harder to achieve, and put important revenue to NBN Co at risk. In this way, a cut to prices on the legacy network poses a serious danger to the success of the NBN policy," Telstra said last Wednesday.

The CCC -- made up of Vodafone, Macquarie Telecom, iiNet, Nextgen Networks, and MyNetFone -- argued last Thursday that government involvement in an independent price debate is a "dangerous precedent" to set, especially when calling for consumers to pay higher prices.

"The Department of Communications' intervention in the ACCC's independent price-determination process to advance the interests of Telstra is extraordinary, unwelcome, unwarranted, and sets a dangerous precedent," the CCC said.

"For a government department to be calling for higher prices for ordinary consumers, and against the interests of competition, is surely a first at the federal level... For it to be doing so in the context of fixed-line communications services, where we Australia has (sic) the national disgrace of the highest prices in the developed world, beggars belief."

Optus similarly stated that the most concerning part of the government's submission "from a public policy perspective is that the department considers it appropriate to intervene". The country's second-largest telco argued that such an intrusion could cause a loss in public confidence for NBN policy.

The government released its draft Migration Assurance Policy detailing the process for customers to be migrated from Telstra's legacy copper network to the fixed-line NBN a week ago. An estimated 3.27 million premises could be serviced by the hybrid fibre-coaxial (HFC) networks being taken over from Telstra and Optus, with customers beginning to be connected from March 2016.

The ACCC has published the submissions it received from Telstra, Optus, iiNet, Macquarie Telecom, TPG, and the Department of Communications in relation to fixed-line pricing.

The Department of Communications had not responded to a request for comment by the time of publication.

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