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Telstra: Slashed wholesale prices could slow NBN customer migration

Telstra has warned that the ACCC's draft decision to cut its wholesale prices by 9.6 percent could lead to a market where retailers will delay transitioning customers onto the NBN.
Written by Corinne Reichert, Contributor

Telstra has spoken out against a draft decision 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, saying the price slash could impact the migration of customers onto the National Broadband Network (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 warned in a blog post on Wednesday.

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 on Monday. 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.

While the ACCC had originally planned to reduce prices across seven of its fixed-line wholesale services by 0.7 percent, its revised price cut, announced late last month, said the amount that Telstra charges retailers for use of its broadband internet services are to be cut by 9.6 percent from October 2015.

It stated that customer migration to the NBN was precisely the reason why it had opted to slash prices, as customers stuck on Telstra's legacy copper network during the transition should 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.

"Our draft decision is that assets that become redundant as a result of migration will be removed from the asset base. Also, users of the copper network will not pay the higher prices that result from the loss of scale efficiencies as the number of services remaining on the copper network falls."

Telstra's response on Wednesday suggested 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," the blog post said.

"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".

Telstra equated the mandated 9.6 percent cut in wholesale prices to a loss of hundreds of millions of dollars over the course of the next few years, with the telco saying the reduced costs to be paid by retailers for use of its network would fall below the company's actual costs.

Telstra said the "decision has some serious flaws, and contradicts the ACCC's own principle of full cost recovery".

While Telstra's competitors welcomed last month's draft decision, Telstra had previously argued in October that it should conversely be permitted to increase its wholesale fixed-line prices, because it will lose the economies of scale and face higher costs to maintain its network as it progressively hands over ownership to NBN.

"Telstra's argument that it needed to be compensated by competitors and consumers for the equipment it turns off as it is replaced by the NBN was always an extraordinary claim," Competitive Carriers Coalition (CCC) chairman Matt Healy said in response last month.

"Telstra negotiated a handsome payout from NBN for migrating customers off this equipment -- billions of dollars in taxpayer money. Asking the ACCC to allow it to increase charges to people still using the old copper network to compensate Telstra again for the loss of scale caused by migration to the NBN was the height of cheek."

Under its agreement with Telstra, NBN will obtain ownership of the telco's legacy copper and HFC networks for its so-called multi-technology mix (MTM) network incorporating fibre to the premise, fibre to the node, fibre to the building, and HFC.

Submissions to the ACCC's draft decision closed on Friday.

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