ACCC proposes enhanced rules under the Telstra accounting separation regime

The Australian Competition and Consumer Commission today issued the third of its draft record keeping rules under the accounting separation regime for Telstra. The ACCC is seeking comments from interested parties on the draft rule.

The rule relates to imputation testing on retail services using Telstra's core wholesale services. Imputation testing is used to assist in detecting an anti-competitive price squeeze in a retail market. A price squeeze could occur where Telstra reduces the margin between retail and wholesale prices to a level that inhibits competition.

“The draft rule updates a rule that the ACCC issued last year", an ACCC Commissioner, Mr Ed Willett, said today. "At that time, the ACCC foreshadowed the issuing of a revised rule that would require Telstra to report on the retail ADSL service.

"The purpose of this is to determine whether those providers using the unconditioned local loop service, which is a wholesale service used to gain direct access to Telstra's copper network, would be able to viably provide broadband services.

"This is different from the ACCC's investigation into wholesale ADSL pricing, which is currently subject to a Competition Notice. That investigation relates to the retail pricing of the service for competitors who resell Telstra’s ADSL wholesale service".

Comments on the draft rule should be provided by no later than 5 p.m. on Wednesday 22 September 2004 and addressed to: Mr Sean Riordan, Acting Director, Telecommunications, Australian Competition and Consumer Commission, GPO Box 520J, Melbourne VIC 3001 or by email to sean.riordan@accc.gov.au.

Background

On 24 September 2002 the Minister for Communications, Information Technology and the Arts, detailed a range of measures aimed at increasing the level of competition and investment in the telecommunications market to benefit consumers and business. One of the key measures announced was the encouragement of a more transparent regulatory market by requiring an augmented system of Accounting Separation (AS) of Telstra's wholesale and retail operations. Accounting Separation was seen as a means of addressing competition concerns arising from the level of vertical integration between Telstra’s wholesale and retail services and improving the provision of costing and price information to the ACCC, access seekers and the public.
 
Section 151BUAAA of the Telecommunications Competition Act allows the Minister to give a Ministerial Direction to the ACCC about Telstra's wholesale and retail operations. It also provides the Minister with a power to direct the ACCC to prepare or publish reports using its existing broad record-keeping rule powers under Part XIB of the Trade Practices Act 1974.
 
On 19 June 2003, the Minister issued a Ministerial Direction instructing the ACCC to use its existing powers under Part XIB of the Trade Practices Act 1974 to ensure that:

• Telstra prepares current cost accounts, as well as existing historical cost accounts, to provide more transparency to the ACCC about Telstra's cost as an ongoing sustainable business
• Telstra prepares reports for the ACCC on current cost and historic cost key financial statements in respect of 'core' interconnect services
• Telstra's reports be disclosed by the ACCC with an accompanying assessment statement by the ACCC
• the ACCC publishes an "imputation" analysis (based on information provided by Telstra, which assumes that Telstra purchases the "core" interconnect services at the price that it charges external access seekers)
• Telstra prepares reports for the ACCC on information comparing its actual performance in supplying "core" services to itself and to external access seekers in terms of key non-price terms and conditions and
• the ACCC prepares and publishes a six-monthly report on competition in the corporate segment of the market.

Definitions

Core telecommunications services are:

• the declared domestic PSTN origination and termination services are used as inputs by access seekers primarily to supply long distance, fixed-to-mobile and mobile-to-fixed calls to end-users in Australia. They can also be used by other network operators to interconnect with Telstra's fixed network
• the ULLS involves the use of unconditioned cable (typically copper) between end-users and a telephone exchange, where the line terminates. This service enables access seekers to supply advanced, high-speed data services, such as xDSL (digital subscriber line), to customers as well as local and long-distance voice services in competition with Telstra
• the LCS is a service for carriage of telephone calls from customer equipment at an end-user's premises to separately located customer equipment of an end user in the same standard zone. It allows access seekers to provide local calls on a resale or wholesale basis in competition with Telstra.