ACCC issues Telstra accounting separation report for March quarter 2005

The Australian Competition and Consumer Commission today issued its seventh imputation testing and non-price terms and conditions report under the enhanced accounting separation regime for Telstra. The report presents data from the quarter ending 31 March 2005.

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 raises concerns over the service levels that Telstra has supplied to wholesale residential customers in respect of fault handling and some service connections. The ACCC is concerned that these inferior service levels are driven by resourcing limitations and the continued use of separate and less reliable computer systems.  The ACCC has previously raised these concerns with Telstra and has now sought from Telstra an indication of what initiatives it will employ to ensure equivalent service levels for wholesale and retail customers.

The report also presents an imputation analysis that compares Telstra's retail prices to 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 insufficient margins for local call services will be an important concern in the ACCC's current local services review", ACCC Chairman, Mr Graeme Samuel, 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 negative margins on local call services have been persistent and therefore warrant 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.

"While margins are improving, the report continues to indicate that the average margins available in the provision of ADSL, or of a bundle of ADSL and voice services to residential consumers, over the ULLS remain insufficient to recover costs. The ACCC notes that it continues to be the cost of transforming the ULLS into the retail service, rather than the cost of the ULLS itself, that appears to be the main cause of the insufficient margins".

The report notes that a small sufficient margin was available in the provision of a bundle of ADSL and four voice services over the ULLS to business customers.

"The ACCC continues to examine 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 report will be available on the ACCC website.

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.