ACCC draft decision that Optus access undertaking prices for mobile terminating access service are unreasonable
On 8 November 2005 the ACCC announced its draft decision to reject the Optus access undertaking to supply its Domestic GSM terminating access service (DGTA)* at a price trending towards 17 cents per minute in 2007.
Under s. 152BS of the Trade Practices Act a carrier or carriage service provider may provide the ACCC with a written access undertaking—under this 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 for its supply of its Domestic GSM terminating access service with the ACCC on 23 December 2004.
The Act 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
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' MTAS access undertaking by a further three months. Notwithstanding the three-month extension the ACCC expects to be in a position to provide a final view on the undertaking before 25 December 2005.
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.
The ACCC has consistently argued pricing mobile termination significantly above cost will negatively affect 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' 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. From this, 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 several concerns with Optus' proposed undertaking, including 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. 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) are available on the ACCC website, under telecommunications.
The ACCC is also currently arbitrating four access disputes in relation to Optus' supply of the MTAS, under the dispute resolution procedures in Division 8, Part XIC of the Trade Practices Act.
* 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' cpm component. This pricing option is also based around Optus' 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.
ACCC issues discussion paper on Foxtel's special access undertaking for pay TV digital set top unit services
On 10 November the ACCC issued a discussion paper on Foxtel's special access undertaking relating to access to its pay TV digital set top unit service (STU).
On 6 October 2005 Foxtel lodged a special access undertaking with the ACCC relating to digital STU services. The undertaking specifies price and non-price terms and conditions upon which Foxtel proposes to supply access to the service.
Under s. 152CBA of the Act, a special access undertaking can be lodged by a person who is or expects to be a carrier or carriage service provider, so long as the service is not an active declared service.
The ACCC must accept or reject the undertaking based on whether it considers the terms and conditions to be reasonable, and consistent with standard access obligations.
The undertakings, if accepted by the ACCC, will determine the terms and conditions on which other service providers can obtain access to Foxtel’s digital STUs and related services in the absence of commercial agreement between the parties.
This will enable service providers to provide their own digital pay TV services in competition with Foxtel's current digital services. The ACCC intends to assess the undertaking in an open public process. All available information will be taken into account.
ACCC issues discussion paper on access undertakings lodged by Hutchison for mobile terminating access service
On 18 November the ACCC issued a discussion paper on the ordinary access undertakings lodged by Hutchison Telecommunications (Australia) Limited and Hutchison 3G Australia Pty Ltd in relation to the mobile terminating access service (MTAS).
The MTAS was deemed to be declared under the Telecommunications (Transitional Provisions and Consequential Amendments) Act 1997. In July 2001, after a series of arbitrations, the ACCC developed a retail benchmarking pricing principle to guide mobile operators in establishing the price of the MTAS.
On 30 June 2004 the ACCC allowed the existing declaration of the MTAS to expire, and replaced it with a new declaration under s. 152AL of the Act. 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 providing that the price of the MTAS should follow an adjustment path such that there is a closer association of the price and the underlying cost of the service.
On 7 October 2005 Hutchison lodged six ordinary access undertakings with the ACCC relating to the MTAS. Three of the undertakings have been submitted on behalf of HTAL and the remaining three on behalf of H3GA. Hutchison provided a submission in support of the undertakings on 13 October 2005.
Hutchison's undertakings specify some of the price and non-price terms and conditions on which it proposes to supply the MTAS.
Under the Trade Practices Act, the ACCC must accept or reject the undertakings based on whether it considers their terms and conditions to be reasonable.
The lodgment of the undertakings follows the ACCC's decision on 30 June 2004 to continue regulating MTAS. On this date, the ACCC decided to introduce a new approach to regulating the price of this service that would ensure a closer correlation between its price and cost. In its decision, the ACCC estimated that the cost of providing this service, including a normal profit, lay within a range of 5 to12 cents per minute.
Given that the legislation contemplates that arbitrations be conducted in private, the ACCC will not be making any further public comment about the specific MTAS access disputes before it at this stage.
Interim determination published in access arbitration
On 28 November the ACCC published the interim determination, together with the statement of reasons, in the AAPT Ltd (access seeker)–Optus Networks Pty Ltd and Optus Mobile Pty Ltd (access provider) mobile terminating access service* arbitration.
Under the Trade Practices Act the ACCC may make an interim determination in a dispute prior to making a final determination. The interim determination sets out the charges to be paid by AAPT to Optus for the supply of the MTAS, except when agreed otherwise by the parties. The statement of reasons sets out the ACCC's reasons for the interim determination.
The interim determination sets an initial price for the MTAS of 18 cents per minute, decreasing to 15 cents per minute on 1 January 2006 for the remainder of the 12-month period.
The ACCC issued a draft determination and statement of reasons on 28 October 2005. The interim determination is in effect for 12 months or until a final determination comes into effect or the interim determination is revoked. The ACCC is required to consult with the parties regarding publication of the interim determination.
The ACCC has considered the parties' submissions and, except for information considered confidential, the interim determination and statement of reasons are published in full.
* The Domestic Mobile Terminating Access Service is a wholesale input, used by providers of fixed-to-mobile and mobile-to-mobile calls, to allow their customers to call mobile phone users. It allows consumers (either fixed-line or mobile) to call mobile users connected to another network. The carrier whose customer initiates the call pays the carrier whose customer receives the call for the mobile terminating access service.
The disputes relate to the charges, and other terms and conditions, for carrying that portion of a call which terminates on Optus's mobile network.
The ACCC has released its seventh annual Container stevedoring monitoring report. The report, which covers the 2004–05 financial year, showed a slowing down in the growth of stevedores’ productivity levels. Nominal unit revenue and unit costs for total stevedoring services increased again in 2004–05.
Broad trends in the stevedoring industry observed by the ACCC during 2004–05 include increasing volumes, increased overall unit revenue (particularly from ancillary or other services), higher unit costs and high rates of return on assets. There were small unit revenue increases across the industry for loading and unloading 20 and 40 foot containers respectively.
In the year to June 2005, industry-wide average revenue rose from $171.49 per twenty-foot equivalent unit (TEU) to $175.24 per TEU while unit costs increased from $131.75/TEU in 2003–04 to $135.89/TEU.
Revenues from activities other than the core stevedoring activities of loading and unloading containers again contributed to higher unit revenues in 2004–05. The increase in unit revenues was affected significantly by increases in revenue from ‘other’ services. Costs of labour and equipment per TEU increased in 2004–05 compared with 2003–04.
Industry-wide unit margins fell slightly from $39.74 /TEU to $39.35 /TEU during 2004–05. However, profitability in the industry continued to be high. On the basis of accounting data provided to the ACCC, average rate of return on assets (before interest and tax) for the three stevedores was 25.8 per cent in 2004–05 compared with 27.8 per cent in 2003–04. This compares with an average return of about 9 per cent for the top 200 companies in the ASX.
The report questions whether continued high rates of return in the face of rising costs and slower productivity growth are consistent with efficient market outcomes. Accordingly, the report raises questions about potential barriers to entry in the industry.
The ACCC report notes that while a number of parties had expressed interest in establishing a third stevedoring operation, entry into the industry remains difficult.
The report concludes that an assessment was required of certain aspects of institutional arrangements to ensure that they facilitate the most efficient industry outcome possible and that they do not inhibit efficient entry or protect stevedores from competition.
The report is available from the ACCC website or through the ACCC Publications Unit.
AER submission to the AEMC review of electricity transmission revenue and pricing rules—issues paper on revenue requirements
The AER has made a submission to the Australian Energy Markets Commission (AEMC) on the issues paper for the review of chapter 6 of the National Electricity Rules in relation to revenue requirements. Key points in the AER submission include:
the current balance between the level of prescription and regulatory discretion in the rules is considered to be largely appropriate
the current timeframes and review processes are considered appropriate and have been followed in revenue determinations to date such that key aspects of the processes and the overall timeframe could be specified in the Rules
the Rules should be amended to improve a number of aspects of the existing regulatory framework, such as:
the ‘lock-in’ approach to asset valuation
the ex-ante expenditure framework
re-opener provisions
a service standards incentive framework.
the review is an opportunity to:
significantly simplify Chapter 6 by removing any repetitive or overlapping objectives and principles
address an anomaly in the Rules regarding the publication of TNSP information.
Process
The AEMC has proposed a two-stage review, split between revenue setting principles and pricing principles. The revenue setting principles are due to be finalised on 1 July 2006 and the AEMC has proposed pricing principles be finalised on 1 January 2007.
The AEMC plans to release a draft rule change on revenue setting requirements on 9 February 2006.
AER—Access
Directlink
On 8 November 2005 the AER released its draft decision on the Directlink Joint Venturers’ application to convert Directlink to a prescribed service. Directlink currently operates as a market network service and earns revenues based on the spot price differential between the New South Wales and Queensland electricity regions.
The draft decision approves Directlink’s conversion and proposes to provide the Directlink Joint Venturers with a regulated maximum allowable revenue ranging from $12.1 million in 2005–06 to $13.7 million in 2014–15. This is, on average, around 25 per cent less than the Directlink Joint Venturers’ requested allowance of $16.5 million to $18.1 million. The revenue cap is based on a post-tax nominal return on equity of 11.5 per cent and an opening asset value of $116.7 million.
The AER acknowledged that valuing a sunk asset had been a difficult process and a variety of factors had to be considered. Overall, it determined that there were benefits to the National Electricity Market from having Directlink operate as a regulated service. The AER’s approach determined an asset value for Directlink that is consistent with the level of benefits Directlink provides to the market.
Intelligent Energy Systems (IES) was engaged to review some additional modelling on the inter-regional benefits provided by Directlink. IES’ report on the additional modelling was released along with the draft decision and both are available on the AER’s website.
The AER invited written submissions from interested parties on the draft decision and IES’ report by Friday 9 December 2005. The AER will take into consideration issues raised in submissions before issuing its final decision.
ACCC energy activities
Moomba to Adelaide pipeline
ACCC approves third extension of time for the lodgment of revised access arrangement for the Moomba to Adelaide pipeline system
On 16 November 2005, the ACCC granted a third extension of time to Epic Energy South Australia Pty Ltd (EESA) until 27 March 2006 for it to lodge revisions to the access arrangement for the Moomba to Adelaide Pipeline System (MAPS).
EESA applied to the National Competition Council (NCC) on 15 March 2005 for revocation of the MAPS as a covered pipeline. It submitted to the ACCC that an extension of time could help limit the resources spent on the revisions as it would not need to prepare and lodge the revisions if its revocation application was successful. EESA undertook to commence the work required to prepare the revisions if the NCC makes a final recommendation to the minister not to revoke coverage.
The third extension of time is to accommodate changes to the NCC’s timetable for making its recommendations.
The NCC released a draft recommendation on 16 November 2005 that coverage of the MAPS be revoked.
Central Ranges pipeline—draft decision
On 27 October 2005, the ACCC issued its draft decision on the access arrangement proposed by Central Ranges Pipeline Pty Ltd for its planned transmission pipeline in the Central Ranges of NSW. The pipeline will initially extend from Dubbo to Tamworth.
The ACCC is currently the regulator of the Central Ranges transmission pipeline under the national gas code. However, it is intended that this function will pass to the AER. In making this draft decision, the ACCC has been assisted by advice from the AER.
The ACCC had earlier approved a competitive tender process for the pipeline which established key provisions, including the reference tariffs that may be charged until 2019.
In general, the proposed transmission access arrangement incorporates the outcomes of the tender and contains the other elements required by the gas code. However, there are some areas where the proposed access arrangement fails to do this and the ACCC proposes a number of amendments.
No submissions were received from interested parties on the draft decision by the due date of 18 November 2005. The ACCC expects to release its final decision on this matter in early December 2005.
On 17 November 2005 the ACCC reached the preliminary view to not object to a proposal from Airservices Australia (Airservices) to change the prices of its aviation rescue and fire fighting (ARFF) services.
Airservices’ proposal follows its review of alternative charging structures for ARFF services after the ACCC expressed concerns about the structure of these charges in its 2004 preliminary view regarding Airservices’ long-term price notification.
Airservices proposes to charge a common price per tonne to all category 6 aircraft that carry fare-paying passengers and land at an airport with an ARFF service. Higher charges for higher category aircraft are also proposed to apply at airports with a higher category ARFF service. These charges would vary depending on the category of aircraft and on the level of landings of aircraft at particular airports.
A critical and threshold issue in the ACCC’s consideration of the efficiency and sustainability of the proposed charging structure is whether ARFF services are open to competitors entering the market.
The ACCC formed the preliminary view to not object to Airservices’ proposed prices on the basis that it does not appear that competition will be introduced into ARFF services in the short term, and that it is not clear whether Airservices’ proposed pricing structure would be inconsistent with competitive entry if competition were introduced.
The ACCC has sought submissions on this preliminary view and expects to form a final view in December 2005. The ACCC’s preliminary view is available on the ACCC website.
Quality of service monitoring
On 14 November 2005, the ACCC issued its 2004–05 quality of service report for price monitored airports, reporting on the availability and standard of airport facilities at Australia’s major airports.
The ACCC’s role of monitoring quality of service is complementary to its prices monitoring role for aeronautical and aeronautical-related services.
The report shows that over the past three years, Brisbane has been the top-ranked airport, achieving an overall rating of good. Melbourne, Perth and Sydney airports have generally been rated between satisfactory and good, while Adelaide, Canberra and Darwin airports have generally been rated as satisfactory. However, Melbourne airport’s rating has declined since 2002–03, while Canberra airport’s rating has improved. Adelaide airport has been constructing a new terminal which is due to be completed later this year.
Passengers have continued to rate the international terminal facilities at Brisbane, Melbourne, Perth and Sydney airports as good, over the period since 1997–98. Over a shorter time series, passengers rated the domestic terminal facilities at Brisbane, Melbourne and Perth as good, while ratings for Adelaide and Sydney airports were slightly lower.
Airlines generally rated the airside facilities at the airports as satisfactory to good, while their ratings for the international terminal facilities ranged from poor to good. Within these ranges, airlines have rated the facilities at Brisbane and Melbourne airports as better than those provided at other airports. Airlines have generally rated the domestic terminal facilities at all airports as satisfactory since 2002–03, with the exception of Canberra airport, which was generally rated as good.
