ACCC issues Telstra accounting separation report for June quarter 2004

The Australian Competition and Consumer Commission today issued its fourth report under the enhanced accounting separation regime that applies to Telstra. The report concerns Telstra's performance for the quarter ending 30 June 2004. The reported results are consistent with those reported for previous quarters.

The first part of the report contains an imputation analysis that compares Telstra's retail prices with the prices of two core* telecommunications access services. The imputation analysis is designed to reveal whether there is a sufficient margin between Telstra's retail prices and the prices it charges other service providers to use the core services (plus related costs) to allow efficient firms to compete at the retail level.

The report shows that sufficient margins were available for domestic and international long-distance calls and fixed-to-mobile calls, but not for local call services (line rental and local calls combined). At this stage, the ACCC does not necessarily regard the insufficient margins for local call services to be a competition concern, primarily due to the common bundling of local call services with other telephony services. This view could change if the margin available across the bundle of services decreases.

The second part of the report concerns the quality of the basic access service that Telstra supplies to wholesale customers relative to that supplied to Telstra retail customers. The report does not reveal any systematic discrimination against Telstra's wholesale customers.

The ACCC has also issued revised record keeping rules to Telstra to further strengthen the enhanced accounting separation regime. The revised rules relate to imputation testing, non-price terms and conditions and current cost accounting and are broadly consistent with the exposure drafts that had been released.

The current report and the revised rules are available on the ACCC website (see below)

*The two core access services are the local carriage service and the PSTN originating and terminating access service. Telstra will commence reporting on imputation results for the unconditioned local loop service from the September quarter 2004 onwards. This imputation analysis does not apply to the wholesale ADSL service which is the subject of a current ACCC Competition Notice to Telstra.

Background

The accounting separation regime was introduced to address competition concerns arising from the level of vertical integration between Telstra’s wholesale and retail services and also to improve the provision of price and cost information to the ACCC, competing telecommunications providers and the public.

On 19 June 2003, the Minister for Communications, Information Technology and the Arts directed the ACCC to issue record keeping rules to Telstra, requiring Telstra to report on:

• current costs in addition to historical costs under the Telecommunications Industry Accounting Framework (CCA reports)
• imputation analysis comparing Telstra's retail prices and the costs faced by access seekers in purchasing certain core telecommunications services from Telstra (imputation reports)
• key performance indicators on non-price terms and conditions that compare Telstra's customer service performance between specified retail and wholesale supplied services (NPTC reports).

The direction requires that the ACCC make the reports publicly available. It also requires the ACCC to comment on the reports that are submitted.

In accordance with the direction, the ACCC issued record-keeping rules to Telstra on 26 June 2003. These were interim rules that were to apply for a transitional period until permanent arrangements could be implemented.