ACCC draft decision to reject Vodafone undertaking for mobile terminating access service

The Australian Competition and Consumer Commission announced today its draft decision to reject the access undertaking submitted by Vodafone with respect to supply of the Mobile Terminating Access Service on its second generation GSM network.

The undertaking proposed price and non-price terms under which Vodafone offered to supply the MTAS, declared by the ACCC in June 2004.

"The ACCC has rejected this undertaking because it considers that the terms and conditions contained within it are not reasonable", an ACCC Commissioner, Mr Ed Willett, said today.

Vodafone's proposed price terms were based on modelling performed on its behalf by PricewaterhouseCoopers. PricewaterhouseCoopers determined that the 'forward-looking efficient economic costs' for this service, using a 'fully allocated top-down cost model' was 16.15 cpm. Based on this estimate, Vodafone proposed that the access price of the MTAS on its 2G network should trend toward a target price of 16.15 cents per minute (cpm) over the period 2005 – 2007.

"The ACCC has a number of concerns which have led it to the conclusion that Vodafone's proposed prices for its MTAS are likely to significantly overstate the efficient costs of providing the service in Australia", Mr Willett said.

"The ACCC has a number of concerns with application of the methodology and empirical concerns with some of the inputs used by PricewaterhouseCoopers to generate its estimate.

"Even if the ACCC had found this methodology was appropriate, it would not have accepted the undertaking. In addition to the methodological and empirical concerns, the ACCC has further concerns with the some of the specific requirements on fixed-network operators to pass-through changes in the MTAS price to end-users making fixed-to-mobile calls.

"The ACCC also has concerns that some of the non-price terms and conditions contained in the undertaking empower Vodafone beyond what might be considered necessary to protect its legitimate business interests".

Copies of the ACCC's draft report and other documentation relevant to the access undertakings (including the undertakings, Vodafone's supporting submissions and other material) are available on the ACCC website. (see links below)

The ACCC seeks submissions from interested parties on its draft view by no later than 19 January 2006.

Background

On 30 June 2004, the ACCC allowed the existing declaration of the mobile terminating access service 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 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 Trade Practices Act 1974, 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.

Vodafone lodged an ordinary access undertaking with respect its supply of the Mobile Terminating Access Service on its 2G GSM network with the ACCC on 23 March 2005.

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, and
• economically efficient operation of a carriage service, a telecommunications network or a facility.

The ACCC expects to be in a position to provide a final view on the undertaking in February 2006.