ACCC confirms draft decision to continue regulating mobile terminating access services

The Australian Competition and Consumer Commission today issued a final report on mobile terminating access services, confirming its draft decision that regulation of this service continue.

This decision is part of an ongoing ACCC review of the regulation of Australian mobile telephone services, which has involved extensive consultation with the telecommunications industry.

ACCC Commissioner, Mr Ed Willett, said the mobile terminating access service decision includes a new approach to regulating the price this service, ensuring a closer correlation between its price and cost.

"This decision introduces a more direct pricing principle, which requires mobile operators to reduce the price of this service towards its cost by January 2007", Mr Willett said. "The ACCC estimates that the cost of providing this service, including a normal profit, lies within a range of 5 to 12 cents per minute.

"Estimation of this range is based on the accounting information provided by Australian mobile operators and benchmarking against the cost estimates from around the world.

"The pricing principle will require the price to fall to 12c per minute – the top end of this cost range – by 1 January 2007", Mr Willett said.  "This would follow an immediate reduction in the price of the service to 21c per minute – the lowest known price currently available in the market - on 1 July 2004, with three further reductions of 3c per minute on 1 January in each of the three following years.

"The ACCC notes that these prices are not set in stone.  The indicative prices are based on the best information currently available.  The ACCC will continue to monitor developments in this market".

The mobile terminating access service is a wholesale input, used by providers of fixed-to-mobile and mobile-to-mobile calls, to allow their customers to call mobile phone users.  It allows consumers (either fixed-line or mobile) to call mobile users connected to another network. The carrier whose customer initiates the call pays the carrier whose customer receives the call for the mobile terminating access service. 

"The ACCC's investigations suggest current termination charges are at least twice the cost of delivering the service", Mr Willett said. "These above-cost charges are passed on to consumers in the retail prices they pay for fixed-to-mobile and mobile-to-mobile calls. They are also impacting on competition in the market for fixed-to-mobile calls.

"The ACCC's approach should deliver consumers a direct benefit in the form of cheaper calls to mobile phones, and indirect benefits flowing from increased competition and investment in the market for fixed-to-mobile calls".

Mobile originating access services

The ACCC also issued a final report confirming its draft decision that regulation of mobile originating access services should cease after 30 June 2004.

Regulation of the mobile originating access service is currently limited to the small sub-group of telephone calls made from mobile phones to 13/1300 and 1800 numbers. The direct impact of the decision is therefore limited to network owners involved in delivering these calls.

Mr Willett said the ACCC decided that continued regulation of this service would not be in the interests of end users of telephone services.

"In the case of the mobile originating access service, no party has provided any evidence to suggest ongoing regulation is required to achieve this outcome", Mr Willett said.

"Because current market arrangements for this service seem to be working, the ACCC considers that discontinuing regulation is the best approach at this point in time.

"This decision shows that the ACCC will not continue to regulate where regulation is not necessary. In making this decision, the ACCC is displaying its willingness to be flexible in response to market developments by removing regulation in areas where it considers regulation is no longer appropriate".

Background

In March 2003, the ACCC announced it would conduct a wide-ranging review of the regulation of the mobile services industry.

This inquiry included consideration of whether the ACCC should continue, vary, revoke or allow to expire the declaration of the domestic GSM and CDMA mobile originating and terminating access services (“mobile terminating and mobile originating access services”). The current expiry date for both services is 30 June 2004.

What is declaration?

Under the Trade Practices Act 1974 declaration of a service creates a requirement for carriers supplying the service (access providers) to provide the service upon request to other service providers (access seekers). The access provider must take all reasonable steps to ensure the technical and operational quality of the service is equivalent to that which the access provider provides itself.

Thus declaration ensures access seekers have access to the inputs they need to supply competitive communications services to consumers. Access must be provided in accordance with the standard access obligations in the Act. Further terms and conditions can be agreed by commercial agreement. If agreement cannot be reached on the terms of access, the ACCC can arbitrate the dispute.

The mobile terminating and originating access services were deemed to be declared under the Telecommunications (Transitional Provisions and Consequential Amendments) Act 1997.

In July 2001, following a series of arbitrations, the ACCC developed a retail benchmarking pricing principle to guide mobile operators in establishing the price of the mobile terminating access service. The ACCC did not develop pricing principles in relation to the mobile originating access service.

Public consultation

In April 2003, the ACCC issued a discussion paper to inform its review of the mobile terminating access service. It received 27 submissions from interested parties.

The ACCC also held two public forums in Melbourne (29 August 2003) and Sydney (11 September 2003).

After considering submissions from interested parties, the ACCC issued a draft report in relation to the mobile terminating access service on 26 March 2004. The draft report recommended that declaration of this service continue. The draft report also recommended the adoption of a new pricing principle that would generate a closer association between the price of the mobile terminating access service and its underlying cost of provision.

In response to the draft report on the mobile terminating access service, the ACCC received 28 submissions from (or on behalf of) 15 interested parties.

The ACCC issued a draft report on the mobile originating access service in May 2004. The draft report recommended that declaration of this service be allowed to expire on 30 June 2004.  Following the issuing of the draft report, the ACCC received two submissions from interested parties.