ACCC welcomes Australian Competition Tribunal decision that Telstra's Unconditioned Local Loop Service prices are unreasonable

The Australian Competition and Consumer Commission today welcomed a decision by the Australian Competition Tribunal to comprehensively reject Telstra's proposed price for the Unconditioned Local Loop Service. The Tribunal rejected Telstra's appeal on the price for its fixed network on seven major grounds and affirmed the ACCC's decision of 25 August 2006 to reject Telstra's price undertakings.

"This decision is fundamental to Telstra's current broadband FTTN proposal," ACCC Chairman, Mr Graeme Samuel, said. "An FTTN network brings fibre closer to the customer, but continues to use part of the legacy copper network. The substantive area of disagreement on costs under Telstra's proposal has been over the remaining copper, not fibre.
 
"Telstra's copper cost proposal has now been found to be not reasonable by the Tribunal. This makes the need for Telstra to release its FTTN costing for public examination even more pressing."

Telstra had proposed a geographically averaged monthly price of $30 per line in an access undertaking previously rejected by the ACCC.

As stated today by the Tribunal:

'The Tribunal has reached the conclusion that it is not satisfied having regard to the matters set out in s 152AH and the objectives in s 152AB that:

• the charge for access to the ULLS of $30 per service per month in the undertakings, based on the averaging of its costs of supplying the ULLS across the four geographic areas, is reasonable
• the Network Modernisation Provisions in the undertakings are reasonable
• the PIE II model can be relied upon to estimate accurately Telstra's costs of supplying the ULLS for the periods covered by the undertakings
• Telstra's estimated network costs represent a reasonable estimate of its projected network costs for the periods covered by the undertakings
• Telstra's allocation of its ULLS specific costs across ULLS lines only is reasonable with the consequence that the Tribunal is not satisfied that Telstra's estimates of its ULLS specific costs are reasonable
• the use by Telstra of two values for the WACC in determining its cost of supplying the ULLS is reasonable
• the calculation and estimate of the WACC by the addition of an amount equal to one standard deviation in order to allow for the alleged asymmetry and the social consequences of errors made in estimating the WACC, for the purpose of determining and estimating Telstra's specific ULLS costs, is reasonable.'

"This is the fourth decision made by the Tribunal in less than 12 months affirming the ACCC's approach to assessing access prices. This time last year, the Tribunal also rejected Telstra's undertaking for the Line Sharing Service, which also allows competitors to access Telstra's copper network.

"Access pricing in telecommunications is complex, and often involves services of great public importance. Ensuring that the interests of all Australians are served requires a strong, independent and, above all, accountable regulator.

"Once again, Telstra's approach to pricing has been found wanting by the Tribunal.

"Telstra should immediately acknowledge, and accept, the implications of this ruling for its ongoing campaign against the regulatory regime and the ACCC," Mr Samuel said.

The full reasons for the Tribunal decision will be issued on Monday 21 May 2007.

Background

On 25 August 2006, the ACCC rejected the access undertaking that Telstra had submitted for its Unconditioned Local Loop Service. The ULLS allows telecommunications service providers to gain the use of the copper cables between end users and the telephone exchange. Service providers can use the ULLS in conjunction with their own equipment in telephone exchanges to provide a range of telecommunications services, including traditional voice services and broadband internet access.

In September 2006, Telstra applied to the Australian Competition Tribunal to consider whether the access undertaking should be accepted or rejected. If the Tribunal had accepted the access undertaking, then the $30 monthly charge specified in the undertaking would have become binding on service providers wishing to acquire the ULLS.

Today's decision by the Tribunal to affirm the ACCC's decision and reject the access undertaking means that the access undertaking will not come into operation and the price specified in it will not become legally binding.

The price of access to the service will remain subject to agreement between Telstra and its customers, and where agreement cannot be reached, by ACCC determination in a notified access dispute. The ACCC is currently arbitrating nine access disputes relating to monthly charges for the ULLS.