ACCC issues Telstra accounting separation report for December quarter 2004

The Australian Competition and Consumer Commission today issued its sixth imputation testing and non-price terms and conditions report under the enhanced accounting separation regime for Telstra. The report relates to the quarter ending 30 December 2004.

The first part of the report presents an imputation analysis that compares Telstra's retail prices with the prices of three core* telecommunications access services. The analysis is designed to reveal whether there are sufficient margins 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 results for fixed line voice services show that there were sufficient margins for domestic and international long-distance calls and fixed-to-mobile calls, but not for local call services (line rental and local calls combined).

"The ACCC will be considering the insufficient margins for local call services in its imminent review of the wholesale local carriage service declaration", an ACCC Commissioner, Mr Ed Willett, said today.

"The ACCC has not regarded the results as a competition concern to this stage, mainly because of the common bundling of local call services with other telephony services. However, the margins on local call services have deteriorated over time and the ACCC believes this warrants further consideration".

The report also contains imputation testing of the unconditioned local loop core service (ULLS). The ULLS allows a competitor to lease the use of the customer's line from Telstra to supply any combination of access, voice, ADSL or other data services.

"The report indicates that the average margins available in the provision of ADSL or of a bundle of ADSL and voice services over the ULLS are not sufficient to recover costs. The ACCC again notes that the cost of transforming the ULLS into the retail services, rather than the cost of the ULLS itself, appears to be the main cause of the insufficient margins.

"The ACCC is examining possible price and non-price impediments to use of the ULLS and will be looking to vary its determination on model core service terms and conditions for the ULLS".

The second part of the report presents key performance indicators that compare Telstra's customer service performance in meeting certain non-price terms and conditions for its wholesale and retail customers. The report does not reveal any systematic discrimination against Telstra's wholesale customers. However, the ACCC is concerned that outages in Telstra's fault-handling and provisioning systems have led to delays in service to wholesale customers, and intends to monitor the reliability of these systems to better ensure that they do not become a source of discrimination.

The report will be available on the ACCC website. The report on non-price terms and conditions for the September quarter 2004 will be published at the same time.

*The three core access services are the local carriage service, the PSTN originating and terminating access service and the unconditioned local loop service (ULLS).

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 and comment on the reports that are submitted.  In accordance with the direction, the ACCC first issued record-keeping rules to Telstra in June 2003. The ACCC issued revised rules in September 2004.