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Turnbull urges ACCC to avoid NBN migration 'price shock'

Federal communication minister, Malcolm Turnbull, is urging the Australian competition watchdog to avoid making any decisions that could result in an NBN migration "price shock".
Written by Leon Spencer, Contributor on

Communication minister, Malcolm Turnbull and finance minister, Mathias Cormann, have urged the Australian Competition and Consumer Commission (ACCC) to avoid making any regulatory moves that could lead to a "price shock" as people migrate to the national broadband network (NBN).

In a letter dated 16 July to ACCC chairman, Rod Sims, the ministers said that if payments under the initial Definitive Agreement (DA) between Telstra and NBN Co signed in 2011 were to be reduced under new regulatory pressure, it could cause a "price shock" and hamper the public's migration to the NBN.

"If payments under the DAs are subject to a regulatory treatment which temporarily reduces access prices for carriers to use Telstra's network, this may constitute ... a price shock," the ministers said in the letter which was published by the ACCC today.

The ministers referred to the ACCC's final decision on the NBN Co's Special Access Undertaking — a key part of the regulatory framework governing the prices NBN Co can charge for its wholesale prices — in which the competition watchdog said:

"The ACCC considers that end users should not be made worse off by virtue of their migration to the NBN. In particular, to ensure that initial maximum regulated prices will promote the long-term interests of end users, it is important that end users do not experience a 'price shock' due to migration."

In the letter, which refers to the ACCC's continuing public consultation relating to fixed line services, the ministers said that, "as the reforms proceed, we ask that the ACCC be mindful of the valuable role that stability, regulatory consistency, and adherence by all parties to jointly agreed commitments can play in assisting their successful conclusion."

The ministers also said that altering the payment standards agreed to in the initial 2011 deal between NBN Co and Telstra could undermine its integrity.

"The payments that NBN Co ... committed to make over time to Telstra were commercially negotiated by the parties and are part of the agreed terms for Telstra's participation in the industry reforms enabled by the DAs," the ministers said. "It will undermine the integrity of this deal if Telstra shareholders are deprived of the benefit of arrangements they did not initiate but negotiated in good faith. This may weaken Telstra's commitment to current reforms.

"In a worst-case scenario it may even prevent proposed amendments to the DAs which provide NBN Co with access to existing infrastructure that enables the overall cost of the NBN to be reduced by an estimated AU$30 billion," the letter said.

Additionally, the ministers expressed their disappointment in three national carriers, iiNet, Optus and TPG, which made submissions to the ACCC's regulation review of the different components of Telstra's fixed-line wholesale services.

Optus, TPG, and iiNet have all made submissions to the competition watchdog suggesting that copper network pricing regulation should remain in place, as its removal would allow Telstra to raise its wholesale access prices.

The rollout of the NBN should mean that over time, as more customers migrate over to the NBN, Telstra's legacy network will not be used as much. The ACCC has asked whether in such a scenario the regulation of those services on the fixed network would still be required.

"All three carriers clearly understood the commercial value of the commitments sought from Telstra, and the centrality of those commitments to the reform process," the ministers said. "It is disappointing to see them pursuing short term financial advantage which, if obtained, may endanger lasting structural reforms."

The letter is published as the ACCC releases a discussion paper seeking views on setting primary prices for the regulated fixed line services supplied using Telstra's copper network.

The consultation is part of the ACCC's inquiry into making final access determinations (FADs) for the regulated fixed-line services.

The ACCC launched the public inquiry on 23 May, and the discussion paper sets out the its views on the methodology and approach to setting the primary price terms for the 2015 domestic transmission capacity service (DTCS) FAD and invites members of the public and representatives of industry to make submissions.

"The ACCC is seeking views on several complex pricing issues it will consider during the FAD inquiry," said ACCC commissioner, Cristina Cifuentes.

The issues in the review include an assessment of Telstra's expenditure and demand forecasts, approaches to the allocation of costs to access services, the impacts of declining demand and the impact of Australia's transition from Telstra's copper network to the NBN.

Submissions on the discussion paper are due by 26 September 2014. The ACCC expects to release a draft decision on the fixed line services FADs for comment in late 2014 and will consider whether there is a need to consult further before releasing its draft decision.

The ACCC expects to make its final decision by mid-2015.

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