ACCC issues final view on future Telstra price controls

The Australian Competition and Consumer Commission today welcomed the public issuing by the Minister for Communications, Information Technology and the Arts, Senator Helen Coonan, of its report on the price control arrangements that should apply to Telstra after 1 July 2005.

"The ACCC has consulted with a wide range of interested parties through two stages of written submissions and in twelve public meetings in metropolitan and regional areas of Australia", ACCC Chairman, Mr Graeme Samuel, said today.

"The ACCC's recommendations would promote the long-term interests of consumers by encouraging Telstra to make productivity improvements and pass on the benefits to consumers as lower prices, and by improving the schemes that are intended to assist low-income consumers".

The ACCC's recommendation is that price cap regulation should continue on the services to which it currently applies. However, the ACCC considers that services to businesses with more than five lines should no longer be subject to price controls.

In particular, the ACCC recommends that:

• a basket containing line rental, local calls, domestic and international long-distance calls and fixed-to-mobile calls should decrease in price by 4 per cent per year in real terms, that is, be subject to a price cap of CPI – 4 per cent
• the price of connection services should not increase by more than the CPI.

In relation to line rental prices, the ACCC recommends a price control over Telstra's most basic local access products, currently branded HomeLine Part and BusinessLine Part. The ACCC recommends that the price of line rental in these products should not increase by more than the CPI. The ACCC also recommends that it assess proposed line rental increases before implementation to ensure Telstra complies with the price controls.

"As a result, any increases in line rental prices for residential and small business consumers should be more modest than those experienced in recent years", Mr Samuel said.
The ACCC also recommends that:

• the current cap of 22 cents on the price of a local call should remain
• the current cap of 40 cents on the price of a local call from payphones should remain
• dial-up internet calls to ISPs should be subject to the 22 cent local call cap
• Ministerial consideration of directory assistance charges should remain but not be extended to other ancillary charges
• while the current non-metropolitan local call relativity provisions should be retained, direct government assistance should be considered as a better way to improve access for regional and rural consumers
• the current provisions relating to extended zones should be retained.

The ACCC also considers that, while the current low-income scheme has delivered some important benefits to low-income consumers, there are changes that could improve the scope and robustness of the scheme.

The ACCC's recommendation is that the next price control arrangements should apply for three years.

The report can be obtained from the ACCC's website, ACCC offices or by calling 1300 302 502.

Background

In April 2004, the Minister for Communications, Information Technology and the Arts directed the ACCC to hold a public inquiry on the current price control arrangements that apply to Telstra and the nature of the price control arrangements that should apply in future. The current arrangements end on 30 June 2005.

In conducting the inquiry, the ACCC was required to consider, among other things:

• the form, duration and means of implementation of any future price control arrangements
• whether any complementary arrangements are necessary
• mechanisms for assessing and enforcing compliance.

Price control arrangements were first introduced in 1989. Since then, Telstra (or its predecessors, Telecom and the Overseas Telecommunications Corporation) has been subject to price controls on a range of telephone services. Price controls are considered an important telecommunications consumer safeguard that aim to ensure that efficiency improvements are passed to consumers as lower prices for telecommunications services in markets where competition is not yet fully developed. They have also been used to achieve the government's social policy objectives.

The government has commissioned periodic reviews of the price control arrangements. The previous review concluded in 2001. The reviews have been necessary because of the many changes in the telecommunications industry since 1989.