Interim determinations and reasons in two Line Sharing Service telecommunications arbitrations
Following a process of consultation, the Australian Competition and Consumer Commission has today issued the reasons supporting interim determinations made in December 2006 for telecommunications disputes regarding annual charges for the supply of the Line Sharing Service (LSS)*.
Interim determinations were made in Line Sharing Service arbitrations between Telstra and the following parties:
Chime Communications Pty Ltd, and
Request Broadband Pty Ltd.
The interim determinations provide that:
The LSS Annual Charges payable by a party to Telstra for the LSS are $38.40 per LSS per annum ($3.20 per LSS per month).
The interim determinations were made on 21 December 2006, and the charges will apply between the parties for no more than one year. However, the ACCC intends to progress the arbitration of these access disputes towards a final determination as a matter of priority, and is looking to make final determinations by no later than 31 March 2007.
The charges specified in the interim determinations will replace Telstra's LSS annual charges of $9 per month, which Telstra has continued to apply notwithstanding that the ACCC (2005) and the Australian Competition Tribunal (June 2006) has each ruled that a charge of this amount is not reasonable.
In making the interim determinations, the ACCC has applied its long-standing LSS pricing principles (2002), and also the previous rulings that have been made by the ACCC (2005) and the Australian Competition Tribunal (June 2006) concerning a reasonable approach to setting LSS annual charges.
Consistent with the ACCC's published approach since declaration of the LSS (August 2002), a contribution to the costs of providing a telephone line has not been included in LSS annual charges at this stage, as line costs are being fully recovered in other charges. It should be noted that since 2000, Telstra has significantly increased line rental prices paid by consumers and businesses (such as from $11.65 to $27.23 (GST exclusive) for the majority of its retail residential customers) to recover line costs from line rental revenues.
Allowing a contribution to line costs in LSS charges at this time would permit Telstra to double-dip from revenues earned on fixed-voice and ADSL services in over-recovering line-related costs.
While Telstra has to date chosen to set line rental charges at a level that fully recovers line costs, following consultation on a draft interim determination in these disputes (October 2006), Telstra proposed an alternative approach to the recovery of its line-related costs, that could have consequences for the pricing of the LSS and for the wholesale line rental (WLR) service.
Under Telstra's proposal, a contribution to the recovery of line-related costs would be included within LSS annual charges, with a reduction in charges for the WLR service.
While Telstra's willingness to reconsider its approach to the recovery of line costs is welcome, the initial suggestion of Telstra as how to implement this initiative was not acceptable, as:
it results in charges across LSS and WLR that are too high, and
an immediate introduction of a new price structure could unduly harm competition, due to the consequences for competitors who have relied on Telstra's previous price structures in making investment decisions.
The ACCC does not consider it is appropriate for the access seekers to continue to pay LSS annual charges at the rate of $9 per month while alternative price structures are considered by the parties. It is noted that Telstra has long been able to implement a rebalancing of LSS and WLR charges but had not sought to do so prior to the circulation of the draft interim determinations.
The ACCC strongly encourages Telstra to take this opportunity to put forward a reasonable rebalancing of the pricing of LSS and WLR. The ACCC remains open to considering alternative approaches for the purposes of setting prospective LSS annual charges in a final determination. It is also strongly encouraging the parties to negotiate a resolution of the dispute that has regard to charges applying across the LSS and WLR service. However, the ACCC considered that an interim determination should be made in these access disputes that reflects current circumstances, including Telstra's long-standing approach to the recovery of line costs.
The ACCC will publish on its website further details of its reasons for making these interim determinations so as to inform the debate on the LSS and encouraging more reasonable LSS prices to apply across the market.
* The Line Sharing Service (referred to as a Spectrum Sharing Service by Telstra) has been regulated since 2002. The line sharing service allows the copper wires that provide voice telephony to also be used to supply broadband internet services by using the low frequency part of the copper line spectrum for voice and making the high frequency spectrum portion available for data. Access seekers obtain access to the high frequency portion of the spectrum to supply broadband internet. Telstra retains the ability to provide voice services obtain line rental revenue and voice call revenue.
The LSS is a declared service. The ACCC declared the LSS on 30 August 2002, pursuant to subsection 152AL(3) of the Act. A copy of the declaration was published in the Commonwealth of Australia Gazette No. GN41, 16 October 2002.
Telstra unsuccessfully appealed to the Australian Competition Tribunal on an ACCC decision to reject Telstra's 2004 access undertaking for LSS annual charges. This access undertaking proposed LSS annual charges of $9 per month. The Tribunal's June 2006 decision confirmed that Telstra's proposed LSS annual charge was not reasonable.
Since that time access seekers have continued to pay $9 per month for the LSS service notwithstanding the Tribunal decision.
Telstra has argued that LSS monthly costs should include a contribution to line rental. However, it is important to note that, LSS monthly charges cannot be expected to include a contribution to the costs of the line itself in circumstances where the efficient costs of the line are fully recovered through other charges such as monthly line rental charges associated with voice telephony. In the absence of a reduction in these other charges (i.e. line rental), the addition of a component to reflect line rental in the line sharing service would lead to an over recovery of costs.
The ACCC is vested with arbitration powers enabling it to make directions and 'do all things necessary for the speedy hearing and determination of an access dispute'. For the ACCC to conduct an arbitration, an access seeker and/or an access provider must notify the ACCC of an access dispute. The ACCC may arbitrate an access dispute only where:
a declared service is supplied or proposed to be supplied by a carrier or carriage service provider
one or more standard access obligations apply or will apply to the carrier or carriage provider in relation to the declared service and
an access seeker is unable to agree with the carrier or carriage service provider regarding the terms and conditions on which the carrier or carriage service provider is to comply with the standard access obligations.
Where a dispute cannot be resolved after private negotiations, mediation and/or conciliation, either of the access parties may refer the matter to the ACCC. Arbitration by the ACCC would be considered as a final solution for the parties in dispute. Where the ACCC is notified of an access dispute the ACCC must determine the matter, unless it decides to terminate the arbitration or the notification is otherwise withdrawn.
Under the Trade Practices Act 1974 the ACCC may make an interim determination in a dispute prior to making a final determination and may publish, in whole or in part, the contents of a determination and/or reasons after consulting with the parties.
The ACCC has considered parties' submissions in deciding to publish the interim determination, and has decided at the request of the parties not to publish the documents in full.
