ACCC Draft decision that Optus undertaking prices for mobile terminating access service are unreasonable
The Australian Competition and Consumer Commission announced today its draft decision to reject the Optus access undertaking to supply its Domestic GSM Terminating Access Service* at a price trending towards 17 cents per minute in 2007.
"The ACCC has rejected this undertaking because it considers that the target price estimated by Optus is substantially above the cost of supplying this service", ACCC Chairman, Mr Graeme Samuel, said today.
"The ACCC has consistently argued pricing mobile termination significantly above cost will have negative impacts in downstream markets. This is particularly so in the market within which fixed-to-mobile services are provided, where high termination prices end up being passed on to consumers in the form of higher prices for fixed-to-mobile calls.
"The high termination costs also make it difficult for those providers of fixed-line services that do not own and operate mobile networks to compete with those fixed-line service providers – such as Optus – that do".
Optus's proposed price terms were based on modelling which estimated that the 'welfare-maximising' price for this service was 17 cents per minute (cpm) in 2004-05. Based on this estimate, Optus proposed that the access price of its DGTA Service should trend toward a target price of 17 cpm over the period 2005 to 2007.**
"The ACCC has a number of concerns with Optus's proposed undertaking", he said. "This included concerns with the theoretical underpinnings of the methodology employed to determine its 17 cpm estimate.
"Even if the ACCC had found this methodology was appropriate, it could not have accepted the undertaking", he said. "In addition to the ACCC's concerns with the underlying methodology, it has further issues with the application of the methodology and empirical concerns with some of the inputs used to generate the 17 cpm estimate".
Copies of the ACCC's draft report and other documentation relevant to the access undertakings (including the undertakings, Optus's supporting submissions and other material) will be available on the ACCC website, under telecommunications (see links below).
The ACCC seeks submissions from interested parties on its draft view by no later than 29 November 2005.
The ACCC is also currently arbitrating four access disputes in relation to Optus's supply of the MTAS, under the dispute resolution procedures in Division 8, Part XIC of the Trade Practices Act 1974.
* This relates to the supply of mobile termination on Optus's 2G GSM network, which is a subset of the broader MTAS service declared by the ACCC in June 2004.
**The undertaking also has a pricing 'Option 2' which contains a 'two-part' pricing structure with a 'fixed' component and a 'variable' cents-per-minute component. This pricing option is also based around Optus's estimate of the efficient costs of supplying the DGTA Service in Australia and, as with the flat rate target of 17 cpm outlined above, includes a three-year adjustment path.
On 30 June 2004, the ACCC allowed the existing declaration of the mobile terminating access service (the MTAS) to expire, and replaced it with a new declaration under s. 152AL of the TPA. The new declaration included termination of voice calls on 2.5G and 3G mobile networks. On the same date, the ACCC issued a new pricing principle determination providing that the price of the MTAS should follow an adjustment path such that there is a closer association of the price and underlying cost of the service. This pricing principle determination included indicative price-related terms and conditions that specified that the price of the MTAS should trend towards 12 cpm over the 30 month period from 1 July 2004 to 1 January 2007.
Under s.152BS of the TPA, a carrier or carriage service provider may provide the ACCC with a written access undertaking under which the carrier or carriage service provider undertakes to comply with the terms and conditions specified in the undertaking in relation to the standard access obligations applicable to that provider.
Optus lodged an ordinary access undertaking with respect its supply of its Domestic GSM Terminating Access Service with the ACCC on 23 December 2004.
The TPA provides that the ACCC may only accept or reject an undertaking. Under s.152BV the ACCC must not accept an undertaking unless, among other things, it is satisfied that the terms and conditions specified in the undertaking are reasonable. In determining if the terms and conditions of an undertaking are reasonable, the ACCC must have regard to the:
long-term interests of end-users
legitimate business interests of the access provider
interests of persons who have rights to use the declared service
operational and technical requirements necessary for the safe and reliable operation of a carriage service, a telecommunications network or a facility, and
economically efficient operation of a carriage service, a telecommunications network or a facility.
On 1 September 2005, the ACCC wrote to Optus informing it that the ACCC had extended the six-month time frame in which the ACCC has to assess Optus's MTAS access undertaking by a further three months. Notwithstanding the three-month extension the ACCC expects to be in a position to be in a position to provide a final view on the undertaking before 25 December 2005.
